I purchased 4 unit property in Massachusetts roughly 5 years ago as an investment. However, the property has been a financial money pit for my wife and I. We have had to evict 5 tenants amounting to roughly $15,000 in unrecovered rents, long duration vacancies resulting in thousands in lost income, and we have had to put tens of thousands into repairs over the years. With the crash in the real estate market, we haven’t even acquired equity in the building. We purchased the building for $225,000 and still owe $200,000, but according to my real estate agent the listing price could not be any higher than $145,000 to have a chance of selling. A recent frozen pipe and the resulting water damage was my final straw. It is just not financially feasible for me to continue owning and operating this rental property.

Our operational losses over the last five years is in the tens of thousands and we have lost $80,000 in the value of the property. As an investment, I would call this an utter failure both monthly and long term. Now that the 5 years is just about up on the 5 year ARM, I can’t see any reason not to let the bank take the property. My family and I would save so much money monthly and forgetting the $80,000 in equity loss seems like the right choice.

However, before I tarnish my credit for a bit, I’d like to see if any knows if banks would be willing to help me salvage this investment rather than letting it foreclose and the auction only netting the bank $100,000 if lucky. Is there some middle ground, so that the liability is not entirely on either of us? Without this property being an investment, either monthly or long term, there is no reason for me to own it. Is there some loss mitigation department that would be willing to rewrite the loan for market value allowing me to continue owning an operating the property but at a monthly profit?

Can I do this? Is it legal? Sounds like blackmail, give me $55,000 off my mortgage or I abandon the property?

What is more likely is that if you are having financial problems they would do a loan modification from an ARM to a fixed rate.

What rate is your ARM currently?? Do you have a property management group handling your asset or are you self-managing??

You probably bought at the height of the market hoping for high appreciation with minimal cash flow.Whether you would just let the property go has to do with many factors.

Is the loan a recourse or non-recourse loan?? Do you have other assets the bank will want to tap once you try a short sale etc.??

You need to go to an attorney to review your situation. It's like taxes in these situation where everyone is different.

I have a client that had 3 rentals that are underwater and they decided to let go. Their credit was already in the 500's from 700's. They have over 250k in cash and it made no sense for them to spend 3k a month for no benefit when they can set up llc's and buy properties now for cash cheap and create wealth.

Some will cry ethics,morals,etc. but you just need to follow the law.

No legal advice-good luck

Wouldn't that damage have been covered by Insurance?

I'd like more data on rents vs. expenses. 4 plex should easily cover a 225 note. What are the bed counts? Your ARM will adjust, but to what rate? It could go lower.

You should talk to your agent about listing the property at the price they suggest and doing a short sale.

If all else fails, try to do a "deed in lieu of foreclosure" instead of letting the bank take your house. Best of luck to you.

Wow, that is a tough call. Are your units filled currently? Also, to negotiate you would need to prove you can not float the loan. If you happen to have a good savings account and jobs the final option you mentioned would be difficult to do IMO.

Foreclosure or DEED in Lieu: First of all I hope you save every single receipt that you have spent money on while owning this property. Make sure you even save any airline tickets, hotel, ect. receipts you spent as expenses while traveling to manage this property and any management expenses, and rent losses.
If you decide to let it go, interview tax attorneys first. Your loss will not be that great if you give a deed in lieu and get it signed by the bank that they will not take a legal recourse for the balance. It is not too upside down that you can't deal with the tax consequences by offsetting it with your other losses and expenses, get where I am going?

MODIFICATION: If you decide to modify, get your best writing skills out and write a dynamite hardship letter outlining what a loss this property has been and how you are doing everything in your power to honor the obligation of the mortgage. Submit to the bank a proposal say for 2-3% interest rate once you figure out how low the mortgage payment would have to be to offset the monthly maintenance and repair expenses, make sure you put as many expenses into your financial statement that you submit to them, including if you make a trip a year or twice a year - calculate the costs by 12 months to arrive at a monthly costs. You will be surprised what they will do, just stick with it. They are not likely to modify or reduce the principal balance, however it is worth a try. DO NOT PAY ANY MODIFICATION COMPANY THAT CHARGES UP FRONT, especially if you are expecting a principal reduction! If the property is worth 145K and you only owe $200K that is not bad at all. You may even find an investor willing to take that on once you get the rate modified.

If you have a hefty bank account out there they may be reluctant to do a modification, the rule is no more than 3x's in the bank than whatever all expenses (including your home expenses).