Hello Sir. We own a second home in California (good part of SF Bay Area) with a renter. Two years ago contacted Citimortgage for loan mod but they did not help because at that time we were only behind a couple of payments. Citimortgage did offer us a fixed 5-year interest that time (not sure if that was coincidental, instead of related to the request for loan mod). Spouse was self-employed, but just recently took a job with less pay. After rent income, I calculated $863 shortfall because of insurance, HELOC and RE Tax, which we do not have.
As of today, we are not behind in mortgage/HELOC payments, but feeling very overwhelmed, also since RE Tax coming up soon. CitiMortgage $486K CitiHELOC $144K, per zillow (I know that’s not the best basis) value of home down to $475K. We want to throw in the towel but not sure best course of action. Our credit is not good to re-fi, already went through loan mod on our first home.
Good day. Thanks for accommodating questions such as this. We want to throw in the towel based on our current situation, but not sure best course of action. Will shortsale continue to make us liable for HELOC? Is being behind in payments the only way Citi will consider helping us out on this second home? Thanks a lot for your advise.
Short sale sounds like it would be a decent option in your current position. The HELOC has to be settled out with the short sale, and you would need to get their approval before being allowed to close. The first mortgage will allow a certain amount to be paid to settle the HELOC in their short sale approval. If the HELOC is asking for more than the first is willing to give and it can’t be negotiated any further, then the buyer would either need to increase their offer, or worst case scenario is that you may be asked to cover a portion of the difference. Even if it got to that point and you didn’t want to pay anything out of pocket, you could always turn down the offer and not proceed. This scenario may not be too bad though because the HELOC is completely underwater, the first is not being shorted by too much, and both loans are with CITI … all favorable conditions for short sale.
One important thing to note when doing a short sale on an investment property will be the tax implications. If this were your primary residence you would be exempt from paying taxes on the forgiven debt, but not with an investment property. You will receive a 1099 on the amount of debt that has been forgiven over $600 and this will need to be accounted for on your tax returns. Keep this in mind and you will certainly want to consult with your accountant or tax professional to discuss how this will affect you specifically.
Falling behind on the payments is not necessary (according to the lenders) and there have been some successful short sales with the borrowers remaining current. I have also seen many cases where a short sale was held up, declined, or counter-offered, and I believe it was a result of the borrower remaining current. Yes, a delinquent loan is easier to short sale but falling behind on payments will hurt your credit and if it goes on for too long could result in a foreclosure. Only you can answer the question of whether or not to continue making payments.
Good luck and please keep us posted on your progress in the comment section below.
Andy is a licensed real estate broker in Massachusetts and is the founder of Northeast Properties in Norton, Massachusetts. His brokerage is designed to help homeowners in today’s difficult real estate market, specializing in short sales. Andy speaks with Massachusetts homeowners every day, helping them to address their questions or issues with short sale or loan modification. He enjoys helping consumers arrive at the correct solution to their problem, and believes that the only way to correctly do that is by presenting them with all of their options in an un-biased manner.