Consequences of returning the property to the mortgage holder and walking away?

Hi,

I have a rental property and I had to reduce rents because of the recession. Tenants have just abandoned the property and left some damage and a lot of mess.
I can't carry this mortgage with the rents it makes. Its no longer cashflow positive.

With the current sales market, mortgage penalties and mess/damages, I would maybe break even if I sold. And it would take months. I am thinking about turning over the property to the bank and walking away.

What happens if I do that? Does anyone know a financial specialist who can help me navigate this process.

thanks,
Neil

Where is the property, what is it, and what's left on the mortgage? Maybe someone here could help you with a lot less hassle and risk than the bank route.

Its in Deer Run, its a 4 bedroom house, built in the 80's. House in current shape is worth about 350, there is about 290 left on the mortgage. The house could rent for 1750- 1900 per month in this market.

Banks will foreclose and court will order it sold eventually.

Your credit will be negatively impacted though.

Why not sell it as there is some equity left ?


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What city/province is the property located in? Are you in an area with non-recourse mortgages?
Could you possibly dump it 'as-is' as a fixer-upper for another investor to work with?
Have you considered selling it by Agreement for Sale or something creative like an RTO?

Why not hire a local capable property manger in Calgary ?

Any recommendations folks? Who manages SFHs capably in Calgary ? What fees are common ? 10-12% ?


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See this post, it's a survey on capable management companies in Calgary.

http://myreinspace.com/threads/calgary-property-management-recommendations.38667/

NeilBirch said:

Its in Deer Run, its a 4 bedroom house, built in the 80's. House in current shape is worth about 350, there is about 290 left on the mortgage. The house could rent for 1750- 1900 per month in this market.

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You have a $60,000 spread between debt and value so why not simply sell it?
I don't see a problem. Why would you hand it back?

Sell the property, walking away isn’t the great relief that it sounds like.

Contact your lender explain the situation and see if they will assist with interest only payments or reduced payments while the property is on the market. Most lenders have tools to help individuals in a legitimate hardship. (It’s also in their best interest to work with you as there is almost always a loss to the lender if they have to foreclose)

I usually hear the walk away question from borrowers that find themselves in a situation they don’t know how to get out of. It’s almost never the right thing to do and definitely isn’t if you have equity in the property.

If you have additional questions feel free to msg me I have extensive experience in lending and collecting


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@NeilBirch the suggestion of a PM is a good one if you are done with the hands-on aspect of cleanup...however this is going to cost another ~$250 / month you probably don't want to fork out.

My suggestion here is to think in terms of what else you can do with the net proceeds you will receive from the sale. After you pay a Realtor 4%, what do your investment alternatives look like. Keep in mind the equity markets go up and down too, FANG stocks got crushed in the fourth quarter.

I think RTO / agreement for sale are both bunk options IMHO. RTO is a total garbage product. Agreement for sale is a farm contract that should not be used for residential real estate.

The more plausible options are to hold, renovate and sell, or sell. Keep in mind that you do get some PPD which is a source of income that you have to factor in. Renovate and get a better tenant is an option as well. You can also look at splitting the garage and the residence to get more income.

Neil, did you figure out a solution?

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David Wilson said:

Sell the property, walking away isn’t the great relief that it sounds like.

Contact your lender explain the situation and see if they will assist with interest only payments or reduced payments while the property is on the market. Most lenders have tools to help individuals in a legitimate hardship. (It’s also in their best interest to work with you as there is almost always a loss to the lender if they have to foreclose)

I usually hear the walk away question from borrowers that find themselves in a situation they don’t know how to get out of. It’s almost never the right thing to do and definitely isn’t if you have equity in the property.

If you have additional questions feel free to msg me I have extensive experience in lending and collecting


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David you mention extensive experience in lending and collecting.
Would you mind calling me at 780 974 0177?
Thanks


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