Dear PoPville – Held Hostage by the American Dream

Photo by PoPville flickr user philliefan99

“Dear PoPville,

Held Hostage by the American Dream, Home Ownership

I can’t be the only one this has happened to so I’m writing to get advice and to find out what others have done in similar situations. I have a rental property that I formally lived in (bought in 2003) and had to move from due to family issues. I bought another house (in 2008) that I currently live in and I have been renting out the original house since then, mostly at a loss, since it’s been upside down in the current market.

The first tenants were great and I was happy despite the loss. Those tenants moved for work. The tenants that live in the rental house now, haven’t been as easy or pleasant. Additionally, in this market the rent continues to cover the mortgage less and less so that I’m losing more and more. I’ve also hired a prop manager and so I’m losing, still, more. I’m pretty unhappy with the prop manager anyway. So the situation is that the tenants are difficult, the property manager is inefficient enough so that I’m still dealing with the rental house almost every day, and with the diminishing rental income the mortgage is no where near getting paid for without me personally subsidizing it every month.

At this point, I am losing a significant amount of money each month (and sanity) and trying to figure out what to do with this rental property – a short sale seems so unlikely and long term, especially with these tenants in the house. If the tenants are out of the house (ideal for selling), then how can I afford both mortgages, does that mean foreclosure for sure? Everyone talks about stopping the payment of the mortgage to the rental house but that seems like a road once started you can’t change.

I’ve tried several recommends on attorneys to get guidance but have gotten no where. Very few will return calls and so many are either title attorneys or landlord/tenant attorneys. They really have no practical experience with “investment” (hardly my idea of the word) properties. Any of the short sale attorneys I see online and one I’ve talked to personally seem to be bankruptcy attorneys and so far seem to push that – which is not where I’m hoping to go. Who can I talk to without paying $300/hr to find out if I believe in the attorney or not. Who else out there has gone through this? It feels like I’ll have to jump off and learn the hard way since I can’t get any decent answers up front.”

76 Comment

  • Just to clarify, the mortgage on the rental house no where getting paid for without me personally subsidizing it every month.

    • Original Poster here – Regarding the family issues, my mom has a long-term declining health issue. At the time, it appealed to my father to put a fraction of what it would cost strangers to care-take her toward a down payment on a house in their neighborhood. I work from home, so could be with her during the day.

      The contingency was that I rent out the original house and pay for the mortgage on the new house till I could sell the original one. Since then, both houses have gone upside down.

      The original, rental house is in Eckington where it is not really feasible to raise the rent more than what I’m currently asking. Eckington ain’t Petworth.

      I already refi’d the original rental house for renoations/repairs as I thought at the time it was going to be my forever house.

      I’m interested in hearing from folks who have been through a short sale in which the short sale was difficult (due to tenants or whatever) or foreclosure on an investment property experience/pitfall.

      • I guess I don’t understand why the rent covers progressively LESS of the mortgage, unless you have an ARM or something. Rents haven’t been going DOWN, even in Eckington. I would suggest that when the lease comes up you raise the rent. Check craiglist to get an idea of what the market is.

      • Avoid Bankruptcy, its a financial prison that can last a long time. Avoid housing counseling agencies, they do nothing but collect your info to ensure their govt subsidy.

        If your mortgage company sends you a check (for returned fees or payments) don’t cash it, it will only put you deeper in the hole, and its a tactic they use to do so.

        Christine Axsmith Esq. (in DC) is an excellent lawyer in dealing with real estate issues. Rather than have me rant about how great and affordable compared to other attorneys she is, google her, and then call her to discuss your options.

        • Thank you!

          • No problem, sincere wishes for success I know how it can get. I am in a much better position now with a better mortgage rate, lower payment, returned attorney fees and I just got a check back for escrow overage. Things can get better, and having a good lawyer was the key (for me at least) 🙂

      • I don’t know how things have gone with your mother’s declining health, but your father’s original plan doesn’t sound very fair to you. How are you supposed to be getting any work done at home if you’re taking care of your mother the whole time??

        (At the end of my grandmother’s life, she needed 24-hour care. Her caretakers were my aunt and two aides on alternating schedules.)

      • OP you should submit the specs of your house to the PoP peanut gallery so we can tell you how much you should be getting for rent.

  • Talk to a realtor first. They will have all types of suggestions for you free of charge. As a side, I find it hard to believe that you would be upside down on a property that you bought in D.C. in 2003. The market had held steady here compared to other parts of the country. Or is your house out in suburban VA or MD?

  • Can you raise the rent?

    • This is a good suggestion, if you don’t have 4 or more units in your investment property, there is no rent control, you can raise rent based on cost of living. I have a house I used to rent, but now I keep it completely vacant because the workout after renovations, utilities, permits, and taxes (etc) make renting in DC totally worthless. Besides that, I had a tenant sue me in court for their security deposit and the Judge told me he could award (they left my house extremely dirty) triple damages because, and I quote “The DC court system leans by default towards tenants” Screw real estate investment, as a web designer, I make much more money without the overhead. DC is trying to cater only to wealthy property owners, preventing “Small Sams” (The poor and middle class) from climbing economically out of poor and middle class categories. Its time to re-elect new local gov reps, that relate to us and to overthrow the defunct and corrupt DCRA.

      • Your post is nonsense.

        • How so? Without an explanation of any kind, your retort is as valuable as a penny with a hole in it.

          • Having been on the tenant side of the security deposit argument and suing my landlord for triple damages…There are regulations that as a landlord you need to follow when you are keeping a tenants security deposit…you can’t just keep it without explanation because you think the tenant left the place dirty (even if they did).

            While even I agree that DC landlord tenant laws skew a little ridiculously to favor the tenant…as a landlord you owe it to yourself to do everything by the book. Why would you enter into an agreement if you really truly don’t know the rules? Usually its because neither does the tenant…which is how people get taken advantage of. Both landlord and tenant need to know their rights and responsibilities when they enter into a legal contract.

      • You have to file with the city to get an exemption from rent control. it is NOT automatic. DC is trying to protect tenants, but ultimately they make it so painful to be a landlord all they are really doing is driving small landlords out of business and ultimately drying up the supply of affordable apartments.

  • “Having to buy the other house”

    So someone put a gun to your head in 2008 and forced you to buy another house after you were already both upside down on your first house and renting it for a loss? Why in the world did you buy another house when you were already at a monthly loss with your existing one? Why didn’t you rent?

    I’m sorry mano…this is a situation entirely of your own making. I don’t feel any more sorry for you than I do someone who went to Atlantic City for the weekend and blew the last 5K they had. Your rationale isn’t even close to what I would consider apt. You haven’t lost your job, no mention of expensive medical issues. You just don’t want to pay for it anymore and are willing to dump your problem on the rest of us.

    My recommendation: Follow through on your contractural commitments and continue to pay for the house, or sell it at a loss. The choice is yours. You and literally millions of other Americans are quite literally “the problem”.

    You aren’t hostage to the American Dream, you are hostage to a stunning progression of poor personal judgement and bad decisions.

    • +1.

      I’m sorry, OP, but I have a feeling this is gonna get ugly.

    • I feel for you, but Joker is right.

    • Love how everyone piles on for every issue.

      We need a lot more information but I think we can assume the 2003 house is somewhere else with a lousy rental and housing market. The OP bought that in 2003 thinking they’d be there. They moved to our lovely area in 2008 and bought a house. At the time the 2003 house was worth less than it was purchased for and with good tenants and a decent rental market, a minor monthly loss seemed fine. Now the 2003 house is worth less, the rental market is worse, and the good tenants have moved out. A bad situation but it doesn’t make them an idiot or “the problem.” So ease up.

      I’m no attorney or realtor but seems like the options are either to sell the 2003 house for a big loss and deal with it or sell the 2008 house and move into a cheaper rental. Unless they are both under water and then you have a problem.

      • A fair point.

        OP, care to clarify exactly where these two properties are? That actually might get you some reasonable advice. If the 2003 place is in Detroit or Akron or the like, it’s going to be much easier to understand for this readership than if it’s in Columbia Heights.

    • Instead of judging a person, and “not feeling sorry for them”, why not STFU unless you can offer some helpful advice? So tired of anonymous people chiming in with their moral tirades clogging up threads with BS where people can actually come together instead with the goal to help others.

      Have a nice day.

      • If you’re tired of it, then leave. You don’t run the show.

      • The reason he can’t refinance is because he is under water. Banks today want a minimum of 5% (and those are FHA backed loans), regular loans require a minimum of 10-20% equity which this person doesn’t seem to have.

        One of the effect of so many Americans making such poor or selfish decisions with homeownership the past 5 years is now it is nearly impossible to refinance because no body put any money down on a house, so their was no equity to base a refi on, so congrats.

        I am constantly amazed at the lengths people will go to excuse any action and forgive any trespass. “Lets all just be friends”…

        Any action this person takes other than the right one (abide by his contractural agreement and continue to pay for what he bought) will result in the loss and suffering of everyone else.

        A short sale: Ends up lowering the RE values of all his neighbors, reduces the property tax revenue of his jurisdiction (les smoney for police, fire, schools etc) and costs the bank and its tens of millions of investors.

        Bankruptcy: Ends up Ends up lowering the RE values of all his neighbors, reduces the property tax revenue of his jurisdiction (les smoney for police, fire, schools etc) and costs the bank and its tens of millions of investors AND costing each and every tax paying American. It also hurts other home owners whose banks now ratchet up their refinance.

        Jingle Mail: Simply stopping payment and mailing the keys back to the bank. With the enormous backlog of foreclosures, I would say you have a ~20% chance of never even having the bank come after you. It’s happening all over the country, but it ends up really hurting your previous neighbors (abandoned house in the neighborhood), your previous jurisdiction, and the bank as now the asset is worth even less in a resale than it would be under forclosure.

        Be an adult, put your man pants on and be your own property manager. You got yourself into this situation, and considering you haven’t lost your job or are suffering any other financial woe, it isn’t my responsibility as a tax paying American to get you out of it.

        • “tax paying American” – god, i’m so tired of hearing this phrase.

        • “It isn’t my responsibility as a tax paying American to get you out of it.”

          No, its your responsibility to rant online and not elect quality government officials while watching your Social Security and Medicaid benefits shrink so that rich people don’t have to pay their fair share of taxes.

          You don’t have a choice of what your money goes to, and I can guarantee you that none of your money goes to these efforts, its mostly funded off of insurance and corporate taxes. The tiny amount you pay goes to roads, schools, and 95,000$ hammers used in war. Your rant is unfounded and inappropriate in a post where someone in a difficult situation is looking for a resolution to their suffering. This is not Fox News Channel, its a community blog, where people unite to help each other.

          • yeah, but he’s totally correct. walking away from your financial responsibilities hurts the rest of us. i wish people would understand that. your uniting on the community blog is great, but his walking away from his house tears apart communities!!!

        • 1) The fact that a decision turns out to be a poor one in retrospect doesn’t mean it was a poor decision at the time it was made. I wouldn’t characterize anyone as being selfish or having made a poor decision without knowing all of the facts.

          2) On walking away from your home – Contracts law recognizes a concept called an “efficient breach”, which refers to instances when it is more economically efficient for a party to a contract to breach the contract rather than live up to the bargain that was struck. A mortgage is a contract between you and a lender, not between you and your new neighbors. In a mortgage you receive a loan from a bank to buy property and agree to pay the loan back over time. The bank accepts the property as security for the loan. If the terms of the loan agreement are violated, the bank is entitled to take possession of the property. That’s the extent of the bargain between you and the bank. If you find yourself in a situation where you can’t pay your mortgage, or where it makes no sense to because the home value will be underwater for the foreseeable future, you can reasonably decide that it makes more economic sense for you to break your mortgage contract than to honor it. I’m not saying it’s a good idea. I’m not saying it doesn’t have serious negative consequences. But it’s your call. If I were the OP, I’d talk to the bank first. Lots of banks are willing to work with borrowers to restructure loans so that they don’t have yet another foreclosured property on their books.

        • Sending the keys to the bank would in fact be honoring his contractual agreement. He doesn’t pay, the bank gets the house. Pretty sure that’s part of the agreement.

        • Cut out the tea party talking points. You bring so much vitriol and spite with you whenever you comment. Walking away from a mortgage is not dishonorable or reneging on your promise… its all part of the contract. You’re allowed to, but dont start bitching about the consequences. Further, if it was better financially for the bank to screw you and it was allowed under the contract they would do it in a heartbeat, no reason the borrower shouldnt take this tact as well, then everyone is on an even footing.

  • From your narrative I’m not really sure what you’re trying to accomplish, sounds like you probably want to try and sell the 2003 rental house, but not have to bring money to closing. Usually that would entail a short sale if you’re upside down in the property (as you state you are), but I doubt a bank would be willing to do a short sale if you are (conceivably, not necessarily comfortably) still financially able to pay your mortgage on the rental. This is why most short sale advisers are pushing the bankruptcy angle. A bank is most willing to do a short sale if there’s little to no chance of the owner paying the mortgage (out of money) and it won’t sell for more in foreclosure. Otherwise, if the owner can still pay their mortgage, it doesn’t make sense to let the owner sell with a loss to the bank instead of having the owner keep paying the current (underwater) mortgage.

    I’m not sure a regular attorney will have a solution you’re looking for, this is more like a personal financial/business problem rather than a legal one. A landlord/tenant lawyer could advise you on your current tenant problems, or what you can do to get them out of the rental, if that’s your goal. But if you simply want or need out of the rental property as painlessly as possible, sounds like you need to check your overall finances, and discuss with a short sale adviser more thoroughly.

  • A few Questions/Comments:

    1. How are you upside down on a house bought in 2003? Even with housing going down, most of DC still has seen a significant rise since then.
    2. Kick out the prop mgmt, do it yourself. Even if you just hire a contractor as an as-needed basis, its alot cheaper.
    3. Deductions deductions deductions. Make yourself a business, you can take advantage of better tax laws vs just a person with a rental home. This will mitigate any losses…which can be deducted on a schedule C.
    4. Rents are going up a huge amount in DC. Maybe you should check out what the “market rate” for your place is.
    5. My experience with real-estate lawyers is very, very bad. They have not given people I know very good advice.

    If none of this works… walk away. It will kill your credit for about 10 years, but if you are losing that much money, and the house is upside down its the smart business decision. Dont get into this “moral hazard” argument. Businesses dont do that when they fire 10,000 people, so just make the best financial decisions that you can.

    • Very good advice here from Eric. I bought a house at the peak of the market in 2005, which I now rent out as I doubt I could sell it for what I paid for it. However, the rental market is Petworth is great. I don’t make a lot of money on the house, but I do comfortably cover the mortgage and get a significant tax deductions. I’d estimate that the going rate for a 3BR house in Petworth near the metro has gone from maybe $2000/month to $2700/month for a house in good shape in just the last few years – that’s a huge increase. So if the OP is losing money on the house something is wrong:
      – are the current tenants on a lease? when does it end? You can say you don’t want to renew the lease. Most people would just agree to move out and it’s not likely you would have to actually evict.
      – if the house is in poor shape do some renovations. Just some cosmetic fixes should allow you to rent it for more.
      – change management companies if they’re not working out – I believe there have been previous posts with recommendations.

    • Exactly…banks are more than willing to disregard their obligations without moral considerations…don’t let that argument keep you from making a good long term decision for you.

  • Not enough information. The state the property is located in is particularly pertinent information with regard to the relevant laws relating to tenancy, foreclosure, etc.

    Is it not possible to charge higher rent?

    Can you refinance your mortgage to attempt to make it more affordable? (Rates are at record lows right now.)

    How significantly are you under water? It might make sense to just eat the loss in a lump sum by selling rather than taking a loss every month. If you were prudent and put down a decent down-payment, you may end up not owing the bank money even if you do take a loss on the transaction.

    If you want to go the short sale route, I’d suggest talking to an agent BEFORE you talk to an attorney, as they’ll be able to guide you through the process and their compensation structure doesn’t incentivize creating more work and working more hours than necessary.

  • I can’t even clearly understand your predicament having read it 3 times. I don’t understand how “in this market the rent continues to not cover the mortgage” as rents have been sky in DC and haven’t been negatively affected by “the market”. Also, if you bought in 2003, you should have plenty of margin unless you’ve refinanced. What neighborhood, exactly, has fallen on such disastrous times?

    There appear to be 3 choices:

    1) Sell the house at whatever price will move the property and write a check for the difference to make up the mortgage. It’s painful, but it’s the quickest way out for your sanity. I recommend you do this since you don’t appear to have a good handle on the business you decided to undertake.

    2) Continue to take the small monthly losses and hope/wait for a turnaround. Could go either way. One thing you should do is stop “fixing” things for your tenants and fire your property management company. No sense paying someone to take care of things if you’re still stressing out.

    Without knowing how much you overpaid for your place and how little you’re renting it for, it’s impossible to know how likely a turnaround is. You have to decide how long your savings will last and whether you should just rip off the bandaid and go with option #1.

    3) Do nothing and go bankrupt.

    If you’re not willing to spend $300/hr on advice to get out of your predicament, you’re in way way over your head financially. I’d recommend #1. Find a good RE agent and sell ASAP at whatever cost moves the property and then take out a loan to cover the shortfall.

  • “mostly at a loss, since it’s been upside down in the current market.”

    “Additionally, in this market the rent continues to cover the mortgage less and less”

    Where is this house? Detroit? Ever check out the daily rental or GDON on this fine website? The market is doing just fine in DC

  • I too find it hard to believe that you would be upside downon a house bought in 2003, unless you decided to cash out your equity somewhere along the way. Othrs have already give sage advice up above. I would only add, not knowing what “family issues” made you move in the first place, why don’t you sell your current place and move back into the rental?

  • On the cost side, mortgage rates are really low (or they were until recently). Re-fi the rental property, extend the term of the mortgage, and since you’re already “subsidizing” the property, pay down whatever equity you need to in a lump sum to get the best rate.

    On the revenue side, raise rents. Collateral benefit may be that the difficult renters don’t want to pay and leave, then you could think about selling more easily.

    On the personal commentary side, I started reading your post and thought “Hey, this guy is like me … I rent out a house that I used to live in and then bought a second house in which I now live while I still rent out the old place.” But I have nothing for you. Frankly, it sounds like you over-extended yourself — twice — and have let a festering sore go untreated since 2003 if you haven’t re-fi’d the property since then or tried to sell it in the “good old days” when DC properties sold like hot cakes. Were I you, I’d just get in a realtor and sell the rental property. If what you’re saying is that you’re truly netting out a loss every month (once you take in the tax benefits of the rental property AND the equity your building with each monthly payment), then cut your losses now.

    • hard to re-fi the rental since it isn’t owner-occupied. Requires a lot more equity or $$.

      • I know, I know … a mistake I made myself. Still, I managed it in a way that made sense by transitioning a 30-year that was about 1.25% higher than then-prevailing rates into a 20-year. All that while not owner-occupied, so I had to take the higher rate but still managed to net 1/4 pt. off my rate and 6 years off the life of the mortgage, all for the price of the closing costs. Also, luckily, I had the equity to do it — a fact I overlooked is that OP pretty clearly says he’s underwater on his mortgage, so it’s unlikely to be an option for him.

        Lesson learned: if you’re going to start renting out a property you currently own and live in, re-fi BEFORE you move out.

  • sad to see the american dream collapse so much to only mean owning two homes.

  • I’m renting out my property for 500 bucks a month above mortgage, and it’s still below market for the unit. You aren’t getting enough money for your pad, or you paid too much for it in the first place. Refinance.

    • +1

      The rental market is really tight right now. You signed a stupid lease and this is a personal problem.

  • This Thread is Worthless without the OP.

  • Sell the house you live in now, terminate the lease at the end of its year, and move into the other house. Or, sell the house you live in now, take the proceeds to cover mortgage on the other house, and rent a cheap place somewhere. You got yourself into a mess, now you need to make sacrifices to get out.

  • Some “faulty wiring” could be the answer to your problems. 😉

  • I would seriously consider calling your servicer or mortgage company. It’s amazing the things they will try to do for you these days in terms of refinances.

  • Would be great if the OP would chime in with some more information on the location of the homes and perhaps more numbers then people could provide some more concrete/constructive comments…

  • Suggestions-
    1) Sell 2003 house at a loss. Short sell it and move on.

    2) Put both houses on the market, live in the one that doesn’t sell, or sell both and rent until your lifestyle is less leveraged. Also avoid investments you don’t understand in the future.

    Seriously is the 2003 house in DC, in NW, or NE, north side of the River? It almost sounds like it is in Prince William Co., VA which means it is completely worthless and not even worth the insurance claim.

  • Seriously – 4 long paragraphs and you haven’t told us where the 2 properties are, or other vital circumstances – are you single? Married with kids? Working? If you want advice provide real information. So don’t be too hard on people who think you are just moaning.

    But if in DC – 1. you move into the current rental. You can require tenants to leave when you are moving into your own property. Then rent out the second house to good tenants and manage it yourself.

  • Why do you need a lawyer? Because you can’t pay your bills? I know we’ve been conditioned to think out bad financial decisions are the bank’s fault, the government’s fault, etc, but if you want to be a grownup, sell it at a loss and move on. Or, alternatively, blame the banks for helping you borrow more money than you could afford to repay.

    Also, rents in DC have not dropped. THey ahve risen and DC remains oneof the strongest rental markets in the US. Fire the property manager if you can’t afford them (I know, life’s hard)and raise the rent.

  • Consider eating your “losses” if you’re close to being right side-up. If you’re eating $400/month but are close to moving into black territory on the home, over time you’ll have made a lot of money. Closing costs and fees associated with real estate transactions alone can be larger than your equity is negative.

    When you write “losses” it’s almost as if you’re viewing your rental property as a sublease. But it’s not. You don’t need to be in the black monthly to be doing well for youself, even if you’re upside-down.

    Granted, I don’t know how upside-down you are. If you’re 12 years away from gaining equity, do a short sale and be done with it. This whole analysis really depends on getting the specific numbers.

  • ledroittiger

    Why do people who can’t afford to, purchase houses? Why is there such a stigma attached to renting?

    • “Why is there such a stigma attached to renting?”

      Government manipulation of an otherwise free market. Let the flame war commence.

    • If you find the answer to this question, you’ll win a Nobel. Welcome to 2008.

    • It’s not a stigma, it’s called “math”.

      It starts with all the math you didn’t bother learning in HS and didn’t feel like taking in college.

      When you’re 60 years old, you don’t want to work anymore and/or no one will hire you, do you want to be begging the city to cover your rent like the a–holes we have in this city today, or would you rather have paid off your mortgage and only have to cover food and clothes?

      Our public school system sucks.

      • Yeah, all those transient 21 year olds should go buy a fucking house, morons. Too bad they didn’t learn math in school, otherwise they could save this country!

      • Since I have a degree in math (no joke) I guess I’m qualified to comment, right?

        This attitude is part of the problem, incidentally. People just assume the math works out without actually doing it because it’s “common sense”.

        There are situations in which you can rent a property much cheaper than you can buy an equivalent property, even after factoring in accrued equity. All that extra money could be invested and pay your rent when you retire.

        Additionally, a lot of people forget to factor in the astronomical costs and liabilities associated with property ownership. And depending on your career and location, you may have to factor in major transaction costs associated with buying and selling property every few years.

        The bottom line is that the choice is not always obvious, particularly if you factor in a value for things like liquidity and risk – or if you take into account that, believe it or not, property is not guaranteed to appreciate over time.

        And yet, there is an irrational preference for ownership in excess of what economics would dictate. My guess is that this has a lot to do with government incentives aimed at making everyone a property owner. I mean, honestly, why should your mortgage insurance be tax deductible, really? But regardless, all the average Joe hears is “If I buy a house I don’t have to pay taxes!”

  • You’re not going to get out of this without paying some money to somebody. Here are your options:

    1. Ditch the property management company if they’re as worthless as you say. Managing the property yourself will free up more of the rental income to go to the mortgage. And how much work does managing one house realistically take, even with difficult tenants?

    2. Get rid of the “difficult” tenants. You may have to pay them to move out, but booting them from the property and re-renting for a higher amount may make sense in the long run. If they’re such a problem, make it worth their while to leave.

    3. Involve an attorney. It will cost money up front but it may be the best way to get things done quickly. You can either re-negotiate your loan with the bank, pressure the tenants to become less “difficult,” or figure out another approach. Benny Kass’ firm in DC does all kinds of real estate work, and they’re responsive.

    The bottom line is that you’re going to need to be more of an a-hole to sort this out. People who think being a landlord is easy, particularly in DC, are delusional. Part of the job is being unpleasant enough to the tenants that they don’t become “diffcult” and don’t risk crossing you when they move out.

  • Are you depreciating your rental unit? That helps a lot from a tax deduction perspective and also does not effect AMT because it’s considerred “earned income”. Adding the depreciation to the other expenses of owning an income property helps the financial case for keeping it.

    Beware of the effects of taking depreciation on the property and it’s long term effect. It’s not worth it unless you intend to own it for a significant amount of time. When you go to sell it, any depreciation you claimed must be claimed as income.

    Spend the money on a tax lawyer and see how you can change your cash flow.

  • Joker, whom I’m sure predicted this severe real property devaluation with exact timing and precisely the degree of severity long before it happened, contributes nothing here.

    The OP has done nothing wrong, brought harm to nobody but him/herself and seeks only advice on doing the right thing.

    What I find more irritating than Joker are those write here time and again with such empathy for a tenant who never sacrificed and saved for a downpayment and who’s been evicted, without any regard to the hardship and the heavy burden of a landlord’s responsibilities in owning real property and just carrying it today in 2011 with little or no reward with such a severe devaluation.

    This severe devaluation of real estate has brought havoc to millions of Americans. Many lost their homes and the only property they had.

    So what are they doing ?

    They are starting over, from zero, learning from their hard experiences and any mistakes made. They will not sign a mortgage so easily again, nor buy something again so heavily leveraged.

    There’s a lot to be said for the virtues of solvency and simply living within one’s means.

    How many ignored their parents’ advice of not wanting everything yesterday, working your way up, buying a starter home with drafty windows and formica countertops, something you could afford and pay for easily, and not to get involved in something so highly leveraged with such high mortgage payments together with the BMW with high car payments and higher insurance ?

    Sometimes it takes personal experience and real life hardship from which to learn and to learn hard from and so be better prepared for tomorrow.

    Sadly, this situation with devalued real estate assets and underwater mortgages will continue for years to come until they’ve been amortized down as values flat line more in line with incomes and people’s ability to pay.

  • Questions:

    1.) Are you sure you’re underwater on your house? The bank appraisal and what you might get on the open market are 2 different things. Bank appraisers are, understandably, being extremely conservative these days. Get a reputable realtor who is familiar with the area. I’ve never met Suzanne Desmarais, but I have friends in common with her and I’ve been impressed with her sales in that neighborhood and everything she’s said on this blog and others, if I was interested in selling my house, I’d call her.

    2.) Are you sure you cant rent it for more? Why do you say you cant? So far, youre only justification is that its in eckington, but rent has gone up there. In fact, its gone up quite a bit.

    3.) Why do you have a property management company? If you live locally, can you lessen your financial burden by doing that yourself?

    4.) Your father, who made a financial calculation to lure you to a 2nd mortgage, may be open to bailing you out of the situation that you and he got yourself in.

  • You should check out the HARP program and see if you’re “investment” property is eligible for a mortgage modification:

  • If you’re going the short sale route, the first thing you must do is talk to the bank holding the loan. If you do some leg work up front, it will help determine if the bank will give you approval for a short sale. You will have to provide loads of documents supporting your financial hardship. If you have a 401K, the bank might ask you to pony it up. It would also be in your best interest to hire a company to negotiate the short sale for you after your initial conversation with the bank. Short sales can be a long, complicated mess. It also depends on what bank is holding the loan. If BOA holds it, move onto your next idea.

    I agree with the hoi poi: get rid of the management company and re-assess the rental amount. The rental market in DC is tight. Unless the house is a totally disgusting, it should rent easily.

  • This guy wants to do what all people do and get a house that magically pays for itself via rent. Sorry. Being a landlord is a job, not a meal ticket wit no responsibility. Not gonna fix all your problems. Also, PS, quit with the “American dream” sob story. You own two homes. Many people can’t afford to own even one. You got the American dream twice.

  • I’d like to add that I basically pray to god everyday that I can have the sort of financial trouble you have. Right now I struggle to afford rent on a small apartment shared among 4 people.

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