What approach to take with a rental home I can’t afford?

My husband and I live in Indonesia but own a rental property in CA that we bought 3 years ago. The rents have fallen along with the value of the home to a point that we can no longer afford it. We have attempted mortgage modifications and a refinance with no avail. It is continuing to drain our savings and we can no longer make our mortgage payments. We recently put the home on the market but the values continue to decline to a point that we’ve lost all our equity. Should we try to sell low ASAP and lose our renter or short sale/foreclose?

Asked on September 15, 2011 under Real Estate Law, California

Answers:

M.T.G., Member, New York Bar / FreeAdvice Contributing Attorney

Answered 9 years ago | Contributor

I am so sorry for your situation.  Not that it is an consolation, you are in the same boat as many people.  Having the bank foreclose on the house is an extreme circumstance that you want to use as a last resort or really not at all.  There are a few things you need to know. If there is a valid  lease and you go to sell the house, you sell subject to the lease. So if the tenant's lease is almost done try and see if they will stay month to month.  Short sale is a good option but will require the approval of the bank.  Make sure that when you apply for approval from your bank you need to make sure that they waive the deficiency - the difference between the sale amount and the amount left on the mortgage.  This is very important. Speak with your bank and the tenant. Good luck.


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