Upside Down Lease Option
ORIGINAL QUESTION:
Hello TJ. G…. and I were at your workshop last fall and are involved with your Free and Clear program.
We have a property in Buckeye Arizona that was under a lease-option until the tenant left without notice of any kind. The manager has been unable to rent it since June. If it was rented it would be for no more than 1/2 of the $1750 mortgage payment.
What is the least destructive way to walk away from a house with a neg-am mortgage that might sell in a best scenario for $170,000. The current payoff is about $218,000 with commissions and closing costs bringing the difference needed from us at closing to about $55,000. With 5-600 houses per week coming into the Phoenix market, the value continues to drop daily.
A sub question to this is if the property is put into an LLC and the loan is defaulted would it come back to us personally? An entity lawyer did not know the answer to this.
Thanks, P & G
How have you been Phil?
If it is ok, I will also post this answer on the blog (names removed).
RE: When a lease option tenant leaves early, and you are upside down on payments and mortgage payoff…
When you are selling on lease option, tenants will occasionally leave on you like that. Hopefully you got enough money up front, as I always recommend, to make it harder for them, but if hey do, oh well.
YIKES on the neg-am situation. I know you did not learn that from me. I always say, if it wont cash flow on a 15 year fixed am, you are in too deep. I have warned investors about those low down, and variable loans risks for years. For this very reason. I’ll give it to you strait, there is now real clean exit.
The only way I can see now is:
1. Let the foreclosure happen.
2. Pay of down. But try a short sale first, if you can cash it out when approved.
As far as putting it in an LLC…here is what I teach You can’t buy the insurance after the fire starts.
Also, even if you did first buy it in an LLC, you would still likely be the guarantor. In this case you are are on the loan, not matte who is on title. Sorry about that.
This one does not look good. Hopeful you can get out clean, and take a new approach next time, like those we will teach at our upcoming boot camp in September, that can help you prosper, while avoiding such situations again.
Get details on that at http://tjmarrs.com (look for the upcoming event link)