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Wrench in Rental Plans

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Posted On: 12/22/2010

QUESTION:

We have a second home that we couldn’t sell, so we rented it. The first renter stayed a year, but it took two months before we could rent the property again. The result is that we’re two months behind on our mortgage and are now being foreclosed. We are current on all other bills. What can we do?

ANSWER:

The second property is a rental, so you won’t qualify for most foreclosure prevention programs, since they’re limited to prime residences. Also, if the property is foreclosed any unpaid mortgage debt can be seen as taxable income because the Mortgage Forgiveness Debt Relief Act of 2007 does not apply to investment real estate.

However, this does not seem like a property that should be foreclosed. A foreclosure does not benefit the lender, and being two months behind could well be a resolvable problem. The government says “82.7 percent of the HUD-held loans that are 90 days or more delinquent were brought under control.” If that’s the case with FHA loans, then why not with loans from the private sector?

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You need to phone the lender every day until someone figures out that it’s much cheaper for the lender to get paid late rather than foreclose. For instance, why not agree to send a larger check each month until the missing payments are paid off? Why not dip into a retirement account to bring the note current? Do you have private mortgage insurance? If yes, speak with the mortgage insurance company about its “claim advance” program. The MI company may be willing to bring the loan current to avoid foreclosure costs. Have an attorney make calls on your behalf – you may get a better response.

This problem arose because you did not get rent for two months. Not having cash reserves is a serious problem because there will be future vacancies and repairs. Get rid of the property if you can, hopefully with a sale to at least cover the mortgage

Peter G. Miller is the author of The Common-Sense Mortgage and a veteran real estate columnist. Have a question? Please write to peter@ctwfeatures.com.

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