# Foreclosure on rental property or go into unsecured debt **URL:** \ **Category:** In My Humble Opinion\ **Created:** [March 5, 2015, 5:34pm UTC](https://boards.straightdope.com/t/foreclosure-on-rental-property-or-go-into-unsecured-debt/714293 "2015-03-05T17:34:38Z")\ **Posts on this page:** 20\ **Page:** 2
**Author:** ![nate\_cro](https://avatars.discourse-cdn.com/v4/letter/n/82dd89/32.png) [@nate\_cro](https://boards.straightdope.com/u/nate_cro)\ **Post date:** [March 5, 2015, 10:29pm UTC](https://boards.straightdope.com/t/foreclosure-on-rental-property-or-go-into-unsecured-debt/714293/21 "2015-03-05T22:29:38Z")
> [@FasterThanMeerkats](#): > > I was at a conference where a panelist mentioned one of the big benefits of mgmt company is to kick out undesirable tenants way behind on their rent so you don’t have to deal with the paperwork and emotions involved. Yes, I forgot about that. They do help in all of that and it’s a big help if needed. ---
**Author:** ![usedtobe](https://avatars.discourse-cdn.com/v4/letter/u/ec9cab/32.png) [@usedtobe](https://boards.straightdope.com/u/usedtobe)\ **Post date:** [March 5, 2015, 11:03pm UTC](https://boards.straightdope.com/t/foreclosure-on-rental-property-or-go-into-unsecured-debt/714293/22 "2015-03-05T23:03:44Z")
Just how certain are you that you will not need credit for the next 10 years? There is a fire - the insurance company will cut a check eventually, but, in the mean time, you need housing. Is the property anywhere near a college campus? College student are known for loving cheap housing. Would a coat of paint make the place more salable? I would not use credit to pay off a mortgage - esp. if it is not your residence. Find an agent who can point out how easily another room or five could be added - get a buyer who is willing to trade future income for immediate ownership. All else fails, see “Quit Claim” - I don’t know if it will ding your credit as badly as a foreclosure, but find out. ---
**Author:** ![Clothilde](https://avatars.discourse-cdn.com/v4/letter/c/439d5e/32.png) [@Clothilde](https://boards.straightdope.com/u/Clothilde)\ **Post date:** [March 6, 2015, 2:26am UTC](https://boards.straightdope.com/t/foreclosure-on-rental-property-or-go-into-unsecured-debt/714293/23 "2015-03-06T02:26:23Z")
> [@nate\_cro](#): > > **It is a FHA mortgage and the bank is calling saying we need to refinance in order to rent it out** (it was originally bought as a primary residence, but got too small for my family). The refinance is the main reason we want to to sell the place, along with having to cover two mortgages if we can’t find tenants. We currently moved and have a mortgage on our main residence house now. (Bolding mine) This is not necessarily true. You are not automatically required to refinance a house you initially purchased as your principal residence using FHA financing. Some circumstances, like wanting to purchase a second house using FHA financing, MAY require you to refi the first house, but as long as you lived in the first house at least 1 year (I need to double check that time frame) and the circumstances that would trigger refi don’t apply to you, then you should be able to rent it out without having to refi it. Did you live there at least one year? Is your second (new) house financed with FHA money? Are you behind on your payment? Did the bank give any other reason why they are requiring you to refinance? If you default on federal government money, it will be very difficult to get another government-backed loan at any time in the future. And a foreclosure on your credit report will adversely affect EVERY other kind of credit you try to get, including a new car, or a credit card, or getting an account at the local department store or furniture store during the time the foreclosure is showing on your credit report. Also, want to change jobs? Employers are using credit to make hiring decisions now. Even your doctor’s office will pull your credit. No offense, but it sounds like you’ve just decided to walk away from the house because you’re tired of dealing with it. At this point, you have lots of other options that will end up much better for you. You could sell it “owner financed” (you couldn’t legally record that, though - it would trigger the “due on sale” clause in your mortgage - pm me if you need more info) or lease-purchase (there’s a difference between these two) or if the neighborhood is bad you could sell it to a charity to be used as a group home or halfway house. Deed-in-lieu and foreclosure should be your LAST options, not your first! You say you won’t need credit for several years, but you can’t really predict that. It may cost you a little money short-term to keep the house, but walking away from it will cost you a lot more money, in many more ways, and for a much longer time. So please consider the TOTAL cost to you before making a decision. ---
**Author:** ![Clothilde](https://avatars.discourse-cdn.com/v4/letter/c/439d5e/32.png) [@Clothilde](https://boards.straightdope.com/u/Clothilde)\ **Post date:** [March 6, 2015, 2:31am UTC](https://boards.straightdope.com/t/foreclosure-on-rental-property-or-go-into-unsecured-debt/714293/24 "2015-03-06T02:31:42Z")
> [@usedtobe](#): > > JAll else fails, see “Quit Claim” - I don’t know if it will ding your credit as badly as a foreclosure, but find out. Quit claim applies to the deed, not to the mortgage, and therefore doesn’t affect a credit report. It wouldn’t help the OP. ---
**Author:** ![bengangmo](https://avatars.discourse-cdn.com/v4/letter/b/50afbb/32.png) [@bengangmo](https://boards.straightdope.com/u/bengangmo)\ **Post date:** [March 6, 2015, 5:44am UTC](https://boards.straightdope.com/t/foreclosure-on-rental-property-or-go-into-unsecured-debt/714293/25 "2015-03-06T05:44:22Z")
Some random thoughts… 1. I’d be continuing with the management company - having somebody responsible for monitoring the tenants, maintenance, rent collection etc is well worth it at $50 odd a month 2. Can you stall the refinance for as long as possible? So long as you keep making payments, what is the bank going to do? Can you throw the problem back to them? 3. If you can afford $20+ K as a paydown - can you get a $25K mortgage from a different bank of some sort? Can the additional $20k be rolled into your current mortgage? 4. Just how bad is the area and how much “too small” is the house? If you threw $10-$15K in renovations at it, could YOU live in it and rent out your new house instead? 5. Would it be possible to go to your local church (or similar) and see if they would like to rent it for a nominal sum (say $200 per month) as an interim measure while you look for some other option / outcome? ---
**Author:** ![LurkerInNJ](https://avatars.discourse-cdn.com/v4/letter/l/ed655f/32.png) [@LurkerInNJ](https://boards.straightdope.com/u/LurkerInNJ)\ **Post date:** [March 6, 2015, 3:45pm UTC](https://boards.straightdope.com/t/foreclosure-on-rental-property-or-go-into-unsecured-debt/714293/26 "2015-03-06T15:45:17Z")
> [@Clothilde](#): > > Quit claim applies to the deed, not to the mortgage, and therefore doesn’t affect a credit report. It wouldn’t help the OP. That’s what a Deed In Lieu (of foreclosure) is for. He needs to see if the bank will do this, and what they require. It may or may not be a good deal for him. ---
**Author:** ![edwardcoast](https://avatars.discourse-cdn.com/v4/letter/e/cab0a1/32.png) [@edwardcoast](https://boards.straightdope.com/u/edwardcoast)\ **Post date:** [March 8, 2015, 7:54am UTC](https://boards.straightdope.com/t/foreclosure-on-rental-property-or-go-into-unsecured-debt/714293/27 "2015-03-08T07:54:42Z")
> [@Learjeff](#): > > There’s no mail service where you live? We get our rent checks by mail. Works great. > > We haven’t used a service, and we’re lucky to have decent renters (though not particularly handy or clean ones). I never wanted to be a landlord, and I’m happy my wife agrees that when they leave we’ll sell. But it sure was nice not to have to sell it at the market low point, when we moved! Some clients don’t write you a check unless you are in their face. So sometimes it’s better to knock on their door and get a payment. ---
**Author:** ![yellowjacketcoder](https://avatars.discourse-cdn.com/v4/letter/y/4bbf92/32.png) [@yellowjacketcoder](https://boards.straightdope.com/u/yellowjacketcoder)\ **Post date:** [March 8, 2015, 4:08pm UTC](https://boards.straightdope.com/t/foreclosure-on-rental-property-or-go-into-unsecured-debt/714293/28 "2015-03-08T16:08:16Z")
> [@edwardcoast](#): > > Some clients don’t write you a check unless you are in their face. So sometimes it’s better to knock on their door and get a payment. Some clients won’t get to rent OPs house, either. I’m surprised there exist people that won’t write a check unless they can see the person. What do they do about their election/gas/water/etc bills? ---
**Author:** ![UncleNito](https://avatars.discourse-cdn.com/v4/letter/u/7cd45c/32.png) [@UncleNito](https://boards.straightdope.com/u/UncleNito)\ **Post date:** [March 8, 2015, 4:44pm UTC](https://boards.straightdope.com/t/foreclosure-on-rental-property-or-go-into-unsecured-debt/714293/29 "2015-03-08T16:44:42Z")
Unless the bank agrees to a deed-in-lieu, don’t assume that foreclosure lets you simply walk away. The bank might be able to get a deficiency judgment for whatever is owed after they spend money on attorneys to foreclose, and take a bath on the auction sale. That could be in the tens of thousands of dollars. If the bank will agree to a deed-in-lieu, it will probably also agree to a a short sale. If you’ve been trying “on and off for three years” to sell the property without success, it’s probably because your idea of what it’s worth does not comport to the market’s. At the right price, any property will sell. Even if the bank won’t agree to a short sale, it sounds like you could put in a few thousand in cash to make up the difference and get out of the property, with no ding to anyone’s credit. ---
**Author:** ![Honey](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/honey/32/5074_2.png) [@Honey](https://boards.straightdope.com/u/Honey)\ **Post date:** [March 8, 2015, 8:45pm UTC](https://boards.straightdope.com/t/foreclosure-on-rental-property-or-go-into-unsecured-debt/714293/30 "2015-03-08T20:45:11Z")
> [@yellowjacketcoder](#): > > Some clients won’t get to rent OPs house, either. I’m surprised there exist people that won’t write a check unless they can see the person. What do they do about their election/gas/water/etc bills? I took that to mean that they won’t pay the rent, unless they are confronted face to face. ---
**Author:** ![edwardcoast](https://avatars.discourse-cdn.com/v4/letter/e/cab0a1/32.png) [@edwardcoast](https://boards.straightdope.com/u/edwardcoast)\ **Post date:** [March 9, 2015, 3:50am UTC](https://boards.straightdope.com/t/foreclosure-on-rental-property-or-go-into-unsecured-debt/714293/31 "2015-03-09T03:50:21Z")
> [@yellowjacketcoder](#): > > Some clients won’t get to rent OPs house, either. I’m surprised there exist people that won’t write a check unless they can see the person. What do they do about their election/gas/water/etc bills? They stall until final cut-off notice and then scramble to make a payment for the utility bills because they know the service can be easily cut off. With a renter, they are pushing the boundaries because they know the landlord doesn’t want to go through eviction. But if you are at their door asking them to give you a check, it’s harder for them to ignore you, although I’m sure there are some that do. There is no reason why they can’t drop a check in the postal mail like everyone else does. The thing is, even if you do a credit history on people it doesn’t always show up they are a pain to collect from unless they are truly late and reported for collection. ---
**Author:** ![edwardcoast](https://avatars.discourse-cdn.com/v4/letter/e/cab0a1/32.png) [@edwardcoast](https://boards.straightdope.com/u/edwardcoast)\ **Post date:** [March 9, 2015, 3:51am UTC](https://boards.straightdope.com/t/foreclosure-on-rental-property-or-go-into-unsecured-debt/714293/32 "2015-03-09T03:51:59Z")
> [@Honey](#): > > I took that to mean that they won’t pay the rent, unless they are confronted face to face. That is the meaning of my posting. For some you won’t get paid on time unless you collect it in-person. ---
**Author:** ![edwardcoast](https://avatars.discourse-cdn.com/v4/letter/e/cab0a1/32.png) [@edwardcoast](https://boards.straightdope.com/u/edwardcoast)\ **Post date:** [March 9, 2015, 3:53am UTC](https://boards.straightdope.com/t/foreclosure-on-rental-property-or-go-into-unsecured-debt/714293/33 "2015-03-09T03:53:29Z")
> [@nate\_cro](#): > > Hello, > > I’m new on this forum but I’m looking for some advice. We have a very small rental property that we have been trying to sell for almost 3 years now. It’s too small for most people (900 square feet or so), so many people are not interested in buying. We are having trouble keeping tenants renting for a long period of time due to the area of town and the size of the house. > > It is a FHA mortgage and the bank is calling saying we need to refinance in order to rent it out (it was originally bought as a primary residence, but got too small for my family). The refinance is the main reason we want to to sell the place, along with having to cover two mortgages if we can’t find tenants. We currently moved and have a mortgage on our main residence house now. > > My question is this. Should I let it go into foreclosure and wash my hands of the situation or try to max out a few unsecured loans to pay off the mortgage and hope to keep renting it out? I want to let it go into foreclosure since we won’t need any credit for 10 years or so. I’m worried about the consequences of this though. The mortgage balance is $45k and the house is worth $50k but like I said, we can’t find buyers. > > A couple of reasons I think foreclosure wouldn’t be a horrible thing in this situation is that the mortgage is only in my name, so my wife’s credit wouldn’t be effected. The balance isn’t huge so a bank might not want to fight it too much to try and get their money back. And it’s a FHA loan so it should mostly be covered by FHA insurance which would also be a plus for this situation. > > Thanks for your imput. If were you, I’d get a good recommendation for a Real Estate Attorney. Have a meeting about this, might not cost you more than $100-$300 and see what they recommend you do. Your own attorney is the only one in this that’s going to be on your side. ---
**Author:** ![astro](https://avatars.discourse-cdn.com/v4/letter/a/9dc877/32.png) [@astro](https://boards.straightdope.com/u/astro)\ **Post date:** [March 9, 2015, 5:18am UTC](https://boards.straightdope.com/t/foreclosure-on-rental-property-or-go-into-unsecured-debt/714293/34 "2015-03-09T05:18:04Z")
I’m in commercial real estate sales and some of the things you are relaying in this scenario don’t seem logical to me. Unless you are living a pure cash only existence taking a huge credit nuke via foreclosure is potentially going to cost you FAR more than $ 5,000 dollars over time in much higher credit fees for any future credit and potential interest index increases in your existing revolving credit. Substantial ones. This “We can’t possibly afford to lose more than $ 5000 on the transaction but we can consider blowing up our credit via foreclosure” dichotomy you are proposing is utterly absurd if you have the capacity to carry the house. How are you even considering this? Trying to hang onto this house in the hopes you won’t have to take a big hit has cost you 3 years of mortgage carrying costs, property taxes, insurance, maintenance fees and rental headaches. You, like many owners, are fantasizing about the value of the house, it’s worth what someone is willing to pay not what you have in it. You need to discount the price to a rational “sell now” market price and dump it . Can you sell the house to an investor for a quick cash deal for 35,000? This would be by far your best strategy and let you dump the house. Take out a cash advance on your credit card for 10,000 to cover the difference if you have to but _dump the house_. ---
**Author:** ![usedtobe](https://avatars.discourse-cdn.com/v4/letter/u/ec9cab/32.png) [@usedtobe](https://boards.straightdope.com/u/usedtobe)\ **Post date:** [March 9, 2015, 6:10am UTC](https://boards.straightdope.com/t/foreclosure-on-rental-property-or-go-into-unsecured-debt/714293/35 "2015-03-09T06:10:20Z")
Which is the bigger FICO hit: Foreclosure or Bankruptcy? I can give you a real-life cost of bankruptcy - I did a Chap 7 a few years ago. When I first hit this town, my credit score was low enough that the huge rental complex demanded a $1000 deposit for a $650/mo apartment. My mortgage rate is 12% - about $350/mo more than what a person with a FICO of 700 would pay. And this is a cheap house (foreclosed on and then sat empty for 2 1/2 years). The mortgage was written BEFORE I did the Chap 7 How did it get into foreclosure? They owed $279K in 2008-2009 (when the bubble burst). They put a cheap roof on it (did not patch and re-paint the ceiling) and listed it at $369K. When they listed it, they would have had no problem getting 300-320K - enough to pay off the note and cover the cost of selling. They didn’t see it that way. Don’t be the seller who refuses reality. How many car ads have you seen reading “I owe $5000 on it, so I need 5000 out of it”? It doesn’t work any better for houses. You are putting yourself in a position of having to put a dollar value on your credit worthiness. For me, it was $60K ---
**Author:** ![stui\_magpie](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/stui_magpie/32/11010_2.png) [@stui\_magpie](https://boards.straightdope.com/u/stui_magpie)\ **Post date:** [March 9, 2015, 7:45am UTC](https://boards.straightdope.com/t/foreclosure-on-rental-property-or-go-into-unsecured-debt/714293/36 "2015-03-09T07:45:14Z")
> [@nate\_cro](#): > > It’s worth $50k but we are trying to sell if for $45k. After realtor fees and other fees we would already be paying $5k to get out at that price. I don’t think we can go lower, it just wouldn’t make sense. Where can you buy something to live in for $50k?:eek: Is there an ad or something you can link to? ---
**Author:** ![yellowjacketcoder](https://avatars.discourse-cdn.com/v4/letter/y/4bbf92/32.png) [@yellowjacketcoder](https://boards.straightdope.com/u/yellowjacketcoder)\ **Post date:** [March 9, 2015, 12:59pm UTC](https://boards.straightdope.com/t/foreclosure-on-rental-property-or-go-into-unsecured-debt/714293/37 "2015-03-09T12:59:44Z")
> [@stui\_magpie](#): > > Where can you buy something to live in for $50k?:eek: > > Is there an ad or something you can link to? I was once showed a house that cost $25k (not a typo, twenty five thousand dollars) in the city of Atlanta. There was not a single yard in the neighborhood where the grass was cut. There were homeless people sleeping on the sidewalk at 10AM. There were houses that had burned down but not yet been torn down. The empty lot across the street had become the neighborhood trash heap so they didn’t have to pay for a garbageman, including an old washing machine. The bodega down the street had bars on the window, which hadn’t stopped a bullet from putting a hole in the window. The roads had been paved at one point but were closer to gravel. We passed, but I’m not at all surprised to hear of a house that someone thinks is $50 being in a condition that is legally ‘livable’. ---
**Author:** ![Fotheringay-Phipps](https://avatars.discourse-cdn.com/v4/letter/f/d9b06d/32.png) [@Fotheringay-Phipps](https://boards.straightdope.com/u/Fotheringay-Phipps)\ **Post date:** [March 9, 2015, 1:49pm UTC](https://boards.straightdope.com/t/foreclosure-on-rental-property-or-go-into-unsecured-debt/714293/38 "2015-03-09T13:49:40Z")
As several posters have noted, if you’ve been trying for several years to sell a house for $50K and have found no takers, then it’s not worth $50K. The (monetary) value of something is determined by what people will pay for it. Since the rental market for that property is also uncertain, I would probably sell it for what it’s worth rather than risk being stuck with a white elephant. > [@stui\_magpie](#): > > Where can you buy something to live in for $50k?:eek: You can get houses for virtually nothing in places like Detroit. I know a lot of people who bought (investment) houses in places like Trenton, NJ for prices like $50K and then lost their pants when the bottom fell out of that market. A few years ago I was speaking to a big Trenton real estate investor and he told me that at that time houses in the “better” (rental) neighborhoods were then going for about $30K, and in the worse neighborhoods were about $15K. (This guy subsequently became a full time insect exterminator, although I imagine he still has a few of his Trenton properties.) ---
**Author:** ![Mama\_Zappa](https://avatars.discourse-cdn.com/v4/letter/m/71e660/32.png) [@Mama\_Zappa](https://boards.straightdope.com/u/Mama_Zappa)\ **Post date:** [March 12, 2015, 9:28pm UTC](https://boards.straightdope.com/t/foreclosure-on-rental-property-or-go-into-unsecured-debt/714293/39 "2015-03-12T21:28:12Z")
> [@nate\_cro](#): > > It’s worth $50k but we are trying to sell if for $45k. After realtor fees and other fees we would already be paying $5k to get out at that price. I don’t think we can go lower, it just wouldn’t make sense. I’d agree, though if you have to take cash to closing, you wind up saving your credit rating. Still, from a cash flow perspective you may be better off letting the bank foreclose. What are the terms of the mortgage, and do you live in a recourse state? Recourse means if the bank sells the place for, say, 40K, they can try to get the 5K difference from you. A non-recourse state means the bank is out of luck. ---
**Author:** ![jacobsta811](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/jacobsta811/32/2893_2.png) [@jacobsta811](https://boards.straightdope.com/u/jacobsta811)\ **Post date:** [March 12, 2015, 9:40pm UTC](https://boards.straightdope.com/t/foreclosure-on-rental-property-or-go-into-unsecured-debt/714293/40 "2015-03-12T21:40:26Z")
> [@stui\_magpie](#): > > Where can you buy something to live in for $50k?:eek: > > Is there an ad or something you can link to? There are places all over the midwest where you could buy a 900 square foot house or some far larger for $50k or less. It will be old stock and maybe sort of run down, but there are plenty that are liveable, and more than plenty that are in neighborhoods I wouldn’t at all be afraid to live in. Farming is getting less and less labor intensive so there are lots of hick towns that are essentially slowly emptying out, and with declining population the replacement cost of the house doesn’t really enter into the equation. Better bring your own job though. ie, example: [https://www.coldwellbanker.com/property/1101-Jefferson-St-Beardstown-IL-62618-MLS-2150362](https://www.coldwellbanker.com/property/1101-Jefferson-St-Beardstown-IL-62618-MLS-2150362) [Previous page](https://boards.straightdope.com/t/foreclosure-on-rental-property-or-go-into-unsecured-debt/714293.md?page=1)