Cram Down on Rental Property

[ajatkinsaz]

Has anyone done a Chapt 13 to cram down the mortgage on a rental property to current market value?

I bought a house in AZ as a primary residence, lost job 1.5 years later, found work in another state 9 months after layoff and moved there. Put primary residence as a rental (negative cash flow). House is now in default and has trustee sale of March 30th.

Anyone else do this or have any opinion as to why or why not this would be a good idea?

I own 2 vehicles, one with Tradein of 2k and the other 17k. Credit card debt of about 13k, job that pays 100% commision. Living paycheck to paycheck with no savings, 3 kids (5 years and under). Filing ch 7 now would put me in AZ exemptions, waiting 6 mos to file ch 7 would allow me to file under CA exemptions (higher allowance)

[HHM]

First, realize, you will need to pay the cram down amount in the plan, that is, in 5 years.

So, if you owe $150,000 and the house is only worth $100,000; you would need to pay, in 5 years, $100,000.

[ajatkinsaz]

Yeah, that would be tough to do or qualify to do....

[TexasEx]

I was in similar situation as you (you can search on my previous posts). Moved to another state and left old home rented off. Take a look at all your options and see if its worth keeping the second home.

We were $200K upside down on our old home. We did the math and decided it was better to just surrender the house and keep our primary home. The payment would have been too high to barely break even (making the assumption that the market has hit bottom). It wasn't worth it to us...

[ajatkinsaz]

Hi TexasEx
I will look for your other posts soon ( I have 3 kids 5 and under so time on my own is short).

I understand how you came to your conclusion, as gut-wrenching as it may have been. I guess eventually you realize that the numbers don't lie and you can "what-if" yourself into misery, as I have been for the past few days.

I am still undecided on what to do and I am sure no matter what decision I make I will always wonder if it was the right one?

I do not own any other property. I rent where I am now in CA and ironically had to move out from it since the owner foreclosed. Now MY renter will not pay the rent (sale date of March 30th) since I told them their was a sale date. Which angers me since I had been upfront about the status of the house and even lowered the rent by $300. I have reprocussions for not paying the mortgage (losing my house or paying huge late fees), why should he be able to "freeload" at my house-without reprocussions? ANYWAY...

I am undecided at this point in time as to what to do with the house. If this is the bottom, how great would it be to have the chance to get back even a quarter of what i put into the house (60k down and 30k in upgrades, landscape, etc.) if I could cram down the value. Other than the repayment plan, which could be paid by renters(who pay) and some out of pocket, plus the tax write off... what am I not taking into consideration????? Please point out (even the "obvious"). ANYONE...??? Open to all input.
Thanks.

[debtinohio]

I was losing $300/month on a rental home (was a prior main residence) and decided it wasn't worth keeping either, it was about $40K upside down according to it's market worth, but only about $10K upside down according to an appraisal I got.

It sucks, but it's a necessary step to rebuilding your financial future, one less thing to worry about.

I have a good renter in mine, always pays on time, once I know the firm details of the sale date, I'll contact the bank and make sure she gets her additional 90 days she is allowed by law.

Your renter is required to pay you, regardless of you paying the mortgage, but at this point is it really worth fighting for anymore?

[TexasEx]

Hmmm, not sure how this is going to work (if at all). Since you do not own any other property, the house might be considered your "primary" residence which therefore is not elegible to be crammed down even though you don't live there. Not sure if any judge or trustee will consider it "rental" property or not. Maybe someone else with more experience can chime in on how this would work.

You need to look at BK in the following way: a fresh start. Have you considered what would happen if the renter moves out and you can not make your trustee payment/mortgage payment? Your BK could be dismissed and you could end up loosing the house anyways (plus having your credit destroyed) and the credit card debt/deficiency judgement can get reinstated automatically. Is this a fresh start? You really want to take a chance on this happening?

I know that that these decisions can be hard, hang in there all this stuff will pass. In the end all this stuff is just "money/stuff"... You have kids/family which in my opinion are way more important than any down payment/house/credit score...

[ajatkinsaz]

TexasEx- You really make a lot of sense to my head and my heart.
Thank you so much for your time in replying.

DEBTINOHIO - As for the renter, I think I wil take him on in small claims court for non-payment of rent and use and attorney since I am out of the state. When I win, I can add in the lawyer fees. I have been more than accomodating (reducing rent $300 for the past 2 months and then using his deposit for rent another month) and then they tell me I am SOL and LOL has he is telling me he won't pay. Anything can happen between now and then... we could win the lottery, Uncle Joe can put up some money, or chapt 13 does work for us....? Until the trustee sale, that is my house and it was never my intention to put him or me in this position and I am really sorry they are in the middle of it. Whew! As you can see I am a bit passionate about that and no angst is directed at you. I appreciate your time in helping me !

[debtinohio]

Nothing wrong with small claims court, like I said they are obligated by their lease while they are still living there whether you pay the mortgage or not. It's still your home and you still have costs to pay like HOA dues, taxes or whatever and that's what you still need the money for.

Small claims is easy enough to do, just you'll probably have to go back to the district where the house is.

[ajatkinsaz]

DebtinOhio - Thanks for the input. You are all great to take the time to provide your support and suggustions. Good luck to you.