Profile picture for mikefarinha

Any Recourse in CA When Forclosing on a Rental?

I have two houses. One house I was unable to sell and had to turn it into a rental due to the sour economy. Despite having turned it into a rental I am still eating about a $450/month loss. My wife just gave birth to our son and will be out of work until August, at which time she'll be going back part time and I am an employee of the State of California and have been furloughed so my paycheck has been reduced. Also,  I just found out that my tenants are moving out and I am wondering if I should use this opportunity to foreclose on the property.

I'm not to worried about not being able to buy a new house right away because the house we live in we plan to stay in for quite a while. My main goal is to make sure the house we live in is secure. Would a foreclosure jeopardize that security?
  • April 20 2009 - Sacramento
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Answers (7)

you have some alternatives
  • June 10 2009
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Profile picture for sunnyview
I think you are better off with a short sale as opposed to a foreclosure all the way around. An experienced agent can help you with that, but do not wait. You are better off doing it now while you have a demonstratable hardship on furlough and with a pregnant wife. As for the tax liability, you should consult with a tax professional or attorney experienced in this area. Realtors can help you with the negotiation and short sale process, but for tax questions you should consult with a tax professional.
  • June 10 2009
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The 1099 you "may" receive will come whether you successfully short sell the property, or if the lender forecloses. You can find plenty of information on www.irs.gov
Search for the terms - Insolvent, Insolvency, IRC Section 121,
The information that you find, should be verified with a good CPA as to how it will apply to you specifically.

You do not "NEED" a real estate attorney, as you are not at risk of loosing your current primary residence if the rental property falls to foreclosure. They are two separate properties, and presumably, separate financing, so there is no connection, other than credit score impact, as was advised in a post by another.
Short Selling the rental would be very beneficial to your current&future situation. I have a network of experienced agents around the country, let me know if I can get one to help you reduce your stress & help you sell the property.
  • June 10 2009
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I agree with akoi, you NEED to consult with a real estate attorney, otherwise you risk losing your primary residence. 
If you need a referral please let me know. 
  • June 10 2009
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Profile picture for mikefarinha
Thanks for the info Nathan,

As I understand it if I do a short sale then I'll be hit with a big tax bill on the difference between what I owe and what the house sells for.

As for refinancing my primary residence, I'm in the process now and crossing my fingers that it goes through. If all goes well then I shouldn't need to refi anytime soon.
  • April 20 2009
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Consult with a Real Estate Lawyer ASAP. Not a Property management  lawyer.
  • April 20 2009
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A lender foreclosing on your rental property would not affect the loan on your primary residence.  The foreclosing lender would have no claim to your primary residence.  Under a deed of trust the only recourse a lender has is to foreclose the property used as collateral for the loan.  The only problem would be if you needed to refinance your primary residence, then you'd pretty much be hosed.

If you can't afford to keep both properties, and are upside down on the rental, why not consider doing a short sale on the rental?  It will likely be better on your credit than just letting yourself get foreclosed on.
  • April 20 2009
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