Hi, this might not be the right forum or even website for this, and if so, I apologize in advance. But I thought I'd get some feedback from the RE industry on this one...

My fiance purchased a new home in 2006 in Las Vegas at the peak of the market. $350k home (she put down $80k) on a 30 year, first 5 years were interest only at 6.5%. Next spring, the loan will convert to a regular fixed rate for the remaining 25 years.

She is very discouraged at the moment as you might be able to guess the property values in LV have tanked. Comparable foreclosed and REO homes in her neighborhood are now being bought in the $120-140k range. Aside from the lost value, her concern is that when the loan resets next year interest rates will be up really high. She has no trouble making payments and her lender doesn't see a reason to change her loan since she is a good customer.

She is looking to move out to CA to live with me, but there is no way she can sell and rocoup anything. Even renting it out would be a loss. One of my friends suggested I tell her just to "walk away", move out, leave the keys and wait for it to hit her credit score, especially since she hasn't paid down any principal and the value is gone. Either that, or intentionally "miss" a couple of payments and hope the lender offers her a modification.

I don't know what to tell her, it's a nice house, but she bought at the wrong time and got a bad loan. I'm hesitant to go into a marriage with a new spouse that has a foreclosure already on the books.

I would suggest she list the property with an active, full time agent, who has sucessfully closed short sale listings in the same neighborhood. Once the property is listed at market value, the homeowner must now contact the loan servicer and request a short payoff package. One of the main reasons we have not seen many REO's at present is that loan servicers are now more cooperative with short sale approval requests. If she successfully sells it as an approved short sale, it is a less severe ding on her credit rating than walking away and forcing the lender to foreclose, IMHO.

But don't you have to be in financial distress in order to qualify for a short sale? Be behind at least two payments and show that you can't make any more payments?

I don't think it's a good idea to list a short sale property before it is even approved.

She should not move until she gets the ring.

[quote=Artiste]

She should not move until she gets the ring.


[/quote]

Yeah thanks put the pressure on me!

You making her sell or give back her house and move in for a try-out audition with you, hundreds of miles away from her home, without a commitment from you is putting pressure on her, no?

Even more pressure on the poor girl since you threatened/whined about not wanting to marrry someone with bad credit, no?

For better or for worse - bad credit can happen to anyone for lots of reasons. Job-loss and illness most of all.

It's my professional advice for her to stay put until you get a ring and are officially engaged and committed with a date set.

Wow, Artiste...that did not even cross my mind, but you are totally correct. The ball is in his court (no pun intended).

"She has no trouble making payments and her lender doesn't see a reason to change her loan since she is a good customer."

What this really means is the servicer doesn't want to get sued by the investor who owns the loan for modifying a mortgage which is current. Does your girlfriend have good credit? If so you might want to try and preserve credit.

The bank is in no hurry to foreclose when values are down that much. If it goes into default regulators will require the bank to do a workout or foreclose since it is residential. Currently for commercial properties the regulators are not requiring this.

Couldn't your girlfriend go ahead and get the adjustable mortgage converted into a fixed rate loan ? Then she can rent out and have a property management company handle it and wait for value to rise over the next few years. If she is not trying to preserve credit and wants to move away she could try a DIL but if there are multiple loans you can forget that.

She needs a broker in her area to go to lunch with to go over options and make a choice as to what to do.

no legal advice

[quote=super realtor]"She has no trouble making payments and her lender doesn't see a reason to change her loan since she is a good customer."

Couldn't your girlfriend go ahead and get the adjustable mortgage converted into a fixed rate loan ? Then she can rent out and have a property management company handle it and wait for value to rise over the next few years.

[/quote]

That was my original idea, she's been trying to convert to a fixed rate for about 4 or 5 months. Nothing but runarounds when she calls. BofA literally told her on the phone "there's nothing we can do for you if you're current with your payments." So she's thinking of skipping a couple intentionally to see what happens. Her credit is so-so, no problems but a lot of revolving debt.

ARTISTE - I'm not pushing her to move out here by any means. We've been dating for 4 years, engaged over a year now. We're both tired of the long distance thing. If I was over it I'd move on and let her figure it out, but I was hoping there was a way she could do something about her situation and not get nailed on her credit for the next 10.

One thing to remember,if it makes sense to you the bank seldom agrees. You said for now she can make the payments, why not put it on the market with a Realtor who has lot's of experience. This is not a time to be given your best bud the Realtor a chance to sell it. You need someone that sees opportunities and grabs them while everyone else is still trying to see the benefit. If it does not sell well, many lenders will consider short sales or even modifications after they see the property will not sell for at least the payoff. Some times it just takes longer to get where you need to be.

Good Luck

Hi there. My name is Len and I am a well-known Las Vegas Realtor and I specialize in short sales. I have actually focused on short sales for several years, when most agents did not know what a short sale was at the time. Many people on this forum also know me for the past 5 years and know that I have been a major contributor to this forum.

I would be happy to speak with your fiance about her situation more in depth over the phone. I have an extremely high success ratio on my short sales. I have worked with most banks out there and have many contacts at these banks to assist with getting my short sales approved quickly.

Even though she may not have trouble making the payments, there are several other factors that will apply that she may still be able to short sell the home. One of the factors will be which lender she has the loan with. Please call me right away as there are some things changing right now with short sales and I would be happy to speak with you about them.

I look forward to hearing from you...

Len McGuirk, Realtor, CSP
Certified Short Sale Professional
Direct: (702) 203-6688

Is there a possiblity of renting the home for enough to cover the mortgage payment or most of it? If it were me I'd prefer another solution to walking away. If the expense was being made up by taking in rent it would still be an investment and with some luck values could go up enough to make it worth it in the long run.

Yours is a story way too common these days, minus the moving to CA part. Many homeowners are underwater with their mortgages and are trapped. First step would be to speak with an agent and get their advice for your local area. Best of luck to you.

It's a bad situation that we see all too often. Good people with good credit do not get any attention from the bank because they are making their payments. It takes 3-4 missed payments before the bank starts taking their calls and another 1-2 before they are ready to negotiate on a new loan. That being said, a foreclosure does not look good on the books and if you marry then it will be your problem too. Work with an agent to get a short sale done and save everyone (including yourself) a lot of pain down the road.

I agree with Kristi and Agent 007...speak with a short sale specialist to see if there is possibility for a short sale even though your fiance is not currently in financial distress. Walking away is not a good solution, and renting could be an okay option assuming that the rental value is enough to cover most of the mortgage note and property management company.