We moved out of Michigan in January 2009 due to a new job. We were able to qualify to purchase a home in Indiana even though we had not yet sold our house in Michigan. So, now we own two houses. Due to the lousy housing market in Michigan, our house there is worth between $10,000 to $30,000 less than what we owe, maybe more. We will never recover what we put into it and pay the real estate professionals. We have been trying to sell it since Oct. 2008. Lots of lookers, but no offers. We have also been looking for a renter but the rental market is so flooded that any renters will only pay about $500 less per month than our current mortgage payments. I just feel like we are throwing thousands of dollars our the window every month when we make our payments on this empty house.
- try to negotiate a short sale (which I doubt the bank will do since we have the income to cover both mortgages)
- go into forclosure and accept the hit on our credit since we already have another house
- rent the house for less than our current mortgage payments and try to get some tax write offs while we wait for the market to pick back up again, which could take years!!!
The best answer is going to come from a different expert, your tax advisor.
Since you have the income to cover both mortgages, while unfortunate that the market in Michigan has deteriorated, the obligation to deal with the old mortgage remains yours. Allowing the home to foreclose and dealing with the big bill and tax consequences that could create for you is not a reasonable option.
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That leaves us with two realistic options, to rent at a loss or to buy your way out of the house with a loss.
I think you should go and meet with your tax advisor or find a local tax advisor that can help you determine which option would provide you with the greatest tax benefit at the lowest cost.
If you sell the house for less than you owe you will be able to unload this concrete block from around your neck. You will have to come up with the cash to pay off the difference between the sales price and the amount due.
If you rent the house at a loss of about $6,000 a year plus maintenance costs, you risk greater exposure by being a long distance landlord in a market where renters may have even less concern for the care of your distant property. And trust me, being a long distance landlord is expensive and not fun.