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What does losing properties to foreclosure really do to an investor?

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Specifically, my wife purchased 3 investment properties with sub prime loans before we were married. What's the best way to give those properties back to the lenders? What are the short term and long term finanical risks? What would happen to both of our credit ratings if my name isnt on the title of any of them?

 

Thanks,

 

Tim

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Tim, I'm not an attorney, but I can give an opinion or two here.

First, if your name isn't on the loans you won't be affected by whatever actions your wife ultimately decides to take.

Second, contact the lenders involved to see what sort of options they might be offering with regards to those subprime loans, and how to best handle giving them back the properties.

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Tim,

I will be honest with you. What makes you think the bank wants them back? Why would you get rid of them? Most people don't realize that the bank doesn’t want you property and may even work with you to keep them from foreclosing. There is big talk of a gov't bail out, when in fact all you need to do is call your lender talk to them tell them your situation. You may not get 5 yrs like the fed is talking but 2-3yrs would help, right

 

What does losing properties to foreclosure really do to an investor? It makes them a non-investor

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The bank may be able to come after her for a Deficiency Judgment.

 

I don't know if it is the same in all states.

 

But in my state if the “quick sale” value of the property is less than the loan balance, the bank is allowed to bid in the lower amount as their opening bid.

 

If no one else bids (typically investors) at the courthouse steps, then the debtor will still owe the difference between what the property “sold for” at the courthouse steps and the balance of the loan.

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Tim,

 

You are asking about a deed in lieu of foreclosure, where your wife just transfers title to the lender before the lender goes through the public foreclosure process. The credit effect is the same as a foreclosure. Your wife's credit score will take a hit between 200 and 300 points.

 

Don't think that you are insulated from the foreclosure just because you are not on the loan. Any joint accounts you have will be affected. Credit card companies have a "universal default" provision in their credit agreements. This means that if you default on any credit or trade line you may have, your interest rate will be bumped up to the maximum permitted by law. If you carry balances on your credit cards and your wife is also a joint user, you may find your credit card interest rate jump significantly. Same with car insurance. The insurance company uses credit scores to set rates. Don't be surprised if your insurance premium also increases even though you have not had a ticket or filed a claim.

 

Your ability to get financing will also be hampered if you need your wife's income to qualify for a loan. Lender's will use your wife's credit score to establish your loan's interest rate.

 

A foreclosure stays on the credit report for seven years. On time payments and credit seasoning will help rehabilitate the credit score after a foreclosure. Often, you are able to get decent interest rates for a primary residence mortgage 36 to 48 months after a foreclosure.

 

You don't say why your wife is in trouble. If the properties can be made to generate a breakeven cash flow, you need to do it and get the properties tenant occupied. Sell on lease option or sell on contract for deed so you can make the mortgage payments. You want to avoid a foreclosure if there is any way to salvage these investment properties.

 

If necessary get a second job to supplement your income. There are 168 hours in a week. That is plenty of time to work two full time jobs and still have half of the week left over for sleep.

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Specifically, my wife purchased 3 investment properties with sub prime loans before we were married. What's the best way to give those properties back to the lenders? What are the short term and long term finanical risks? What would happen to both of our credit ratings if my name isnt on the title of any of them?

 

Thanks,

 

Tim

 

The absolute best from what I know is. Make sure they are assets of a s-corporation. Put each home into a seperate land trust with each deed held by a out of state non profit corp. with you a the benefishary then have the corporation file for chapter 11 and go under if needed.

 

I am in the process of buying a portfolio af 1.375 m through a corporate buyout out. I have run this sim idea through 2 differant Corp/real estate lawyers for developers. About 2 weeks from pulling the trigger on this deal.

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The absolute best from what I know is. Make sure they are assets of a s-corporation. Put each home into a seperate land trust with each deed held by a out of state non profit corp. with you a the benefishary then have the corporation file for chapter 11 and go under if needed.

 

Craig,

 

l get the sense from the original post that the mortgages are personally guaranteed, and that the loans are with recourse. I seriously doubt that transferring title to a business entity will help salvage the borrower's credit score.

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Well, you have a couple options. First of all, is there any way to keep the properties as rental units? The rent may pay the mortgage and then some, in which case you might be able to ride out the terrible market.

Is your name on the deed? Is it on the mortgage note? If the answer is no to both, you're not on the hook anyway, she is.

If you're determined to get rid of the things, you could always go to the bank and offer a deed in lieu of foreclosure.

Best of luck,

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