Deed in lieu (loan, interest rate, real estate, foreclosure)

[unclebuck48]

Hi all, here is my situation. We bought our 2nd home last year and started renting the first home around the same time. We have had 2 renters, and the current renters turned in their notice. We rented it for $1150 a month, and our mortgage payment is close to $1600 a month. It is apparent at this point we would have to lower the rent again but we just can't afford to make up the difference, so we decided we need to get out from under this home. We owe $220k on the home and the FMV is around $130. I don't think citimortgage would consider a short sale so I'm thinking about possibly a DIL. I am also concerned about a deficiency judgment which is legal in Nevada. I am not late on the mortgage at this point but I don't plan on paying the mortgage next month. Should I consult an attorney on this or is this something I can handle myself ?, if I need an attorney, what type of attorney? I am not interested in restructuring the loan, it's a 30 yr fixed at 5.75% and not an FHA. Can you give me any suggestions on the best way to be rid of this home? Thanks

[chet everett]

First of all if you are serious about trying to get rid of this home AND NOT HAVING THE LENDER COME AFTER YOU, the absolute last thing you should do is even consider not paying your mortgage!!! In a situation where they could come after you the thing you need to to is work from the assumption that if you do everything you can to remain with the terms of your loan agreement you will have much more ability to negotiate. Once you break the term of that agreement the courts will side with the lender and your potential exposure is HUGE -- $90K would force almost anybody into bankruptcy!

Personally I would like an attorney in my corner, ideally someone that is experienced in working out situations like this w/o litigation. If you really cannot afford the second home, regardless of how low the interest rate is, or even with a reduction in principal, what you NEED is the lender to agree to let you out of portion of the $90K that the property is underwater. An attorney that is experienced in doing this ought to have connections with real estate pros that have provided "broker price opinions" that would support the $130K valuation.

You should also be prepared to show that your income / asset base has changed in such a way that you can't afford to pay the lender. You have to be careful, because if you disclose that you situation has NOT changed but you previously used fraudulent info to obtain a stated income loan the lender COULD seek to press a settlement based on your fraudulent claims and/or pursue criminal remedies. I have seen this recently, but the amount owed was FAR larger (about 10x what you are underwater...).

I thing the toughest part of this is going to be finding the right person. Obviously looking through the phone book is not going to work, and responding to ads in the mass media is risky, as too many are from scammer types. If you ask around as some of the more trust worthy real estate office you may find some one that can recommend lawyers that they may have had direct experience with, but I would try to get multiple recommendations and phone / interview at least two before going with anyone.

I have heard of some towns having "open forums" where folks all in the same boat can meet others that may have gotten some help and I also have heard that some of the law schools are using their legal clinics and practice mentors to help out with this.

The more information you can get the better "armed" you will be.

As you do this, keep excellent documentation of WHO you talked to and WHAT they promised so you do not get snookered and for goodness sake do not stop paying the lender or they launch into foreclosure and you DO NOT want to be on the hook for potentially hundreds of thousands of dollars...

[Leavethetable]

As a brief follow up to Chet's excellent remarks. I agree; try to stay afloat as long as you reasonably can and contact an attorney ASAP. An experienced attorney will know who to contact (e.g real estate liquidation department; for those that cannot modify) and will be able to provide the necessary guidance and hand holding that you will need. The fee you will pay him or her will be much less than paying 90k. One thing to keep in mind. Some banks will not entertain a DIL until you have at least gone through the short sale route first. For example, Wells Fargo requires that the house be on the market for 90 days before they will consider a DIL.

Final thought and just speculation. Given that you are in Nevada and the bank can obtain a deficiency judgment, I am not sure what incentive they will have to accept a DIL. Maybe they would if you work with them first and go through the hoops the may want. My guess, if you just stop paying and do not try to work something out (without litigation) they would just foreclose and obtain the judgment.

For finding an attorney, also check the local bar association and also the Neveda State Bar website which may allow you to find the appropriate attorney in your local area. www.nvbar.org Each bar usually has a free lawyer referral service that will connect you with an atrorney that can help. Also, if you go through the service, the initial fee for the consultation will be free or drastically reduced. I think Nevada is no more than $45 for the initial consultation when you find an attorney through the service; verify this before yo meet face to face. Check it out and Good luck!