Help me get rid of the boat anchor...I mean house!
June 23, 2010 6:03 AM   Subscribe

Stuck with a house that I haven't been able to sell, becoming difficult financially to maintain as a rental. Please advise (long, sorry).

I bought the house just over 3 years ago, about a year after the local real-estate market plummeted thanks to the mortgage crisis. I lived there for about two years and while the setup costs were a bit more than I was expecting, it worked out reasonably well. Unfortunately, I was subsequently laid off a little over a year ago and my housemate moved out. I placed it on the market for six months but could NOT get it to sell..finally I put it up as a rental, found tenants in December, and have been renting it to them ever since. I won't mention the exact locale, except to say that the market there has avoided most of the foreclosure crisis seen in California, Nevada, Florida, etc.

Here's the twist - I moved overseas two months ago for a rather complex array of personal reasons (plus, it's the only way I could find work and I was running out of money). Despite the fact that I no longer have a high-paying career, I LOVE my life here and have no intentions of returning to the U.S. for a long time. I only put the house up as a rental because it wouldn't sell, but maintaining it as a rental property has been a major financial burden - when everything goes right, I only break even for the month. However, things almost never go right - the drain lines get clogged, the dryer stops working, etc. The breaking point for me was when the basement flooded with rainwater last week - the bill for carpet cleaning will significantly deplete my savings.

The stress of dealing with this house has gotten so bad that it has affected my health - I feel burned out and people frequently tell me I look "tired". The stress has also taken a toll on relationships with family - in my absense, my parents are handling affairs with the house and we argue rather frequently about what should be done with it. I would put the house on the market as soon as the tenants move out, but I couldn't sell it after six months on the market last year - who's to say it'll sell this time? And how will I cover the mortgage payment when I have such meager savings?

Here's a quick summary of the situation:
1) House = bought at $180,000, tried to sell at $170,000 with only one offer five months in for $165,000...the sale fell through when the buyer couldn't get approved for a mortgage. I have some theories about why the house was a hard sell, but this question is already rather long...if you really want to know, MeMail me and I'll explain. I could conceivably sell for ~$155,000 but no lower...that's just enough to cover the mortgage balance, agent commissions, and allows an extra few thousand for closing costs.

2) Rent = Once you figure in management costs, the amount I get from rent each month just covers the mortgage payment. I've already spent almost $2000 on cleaning and plumbing repairs this year, and I could easily be spending that much on repairs from the basement flood damage as well.

3) Savings = Very little, only enough to cover 2-3 months' mortgage payments max. I can probably get a few thousand more from selling my car, maybe another $10,000 if I cash out part of my 401(k) (stupid idea I know, but I need the cash). I'm doing what I can to save up more, but even with my incredibly spartan lifestyle the best I can do is put away a few hundred each month.

4) Debt = Thankfully, very little except for that damn mortgage. My student loan balance is quite low, my car back in the U.S. is paid off, and I pay my credit cards off in full every month. My credit score is also extremely good.

And FWIW, I'm currently single and have no other personal or financial obligations.

This whole experience has taught me that I have no business in owning or managing property, but what's done is I'm just concerned with getting this behind me as quickly and cleanly as possible so I can move on with my life. I'm open to any advice or suggestions on how to handle this situation.
posted by photo guy to Home & Garden (13 answers total) 2 users marked this as a favorite
Is there a reason you are waiting until the current tenants move out to list the house on the market?
posted by kpht at 6:26 AM on June 23, 2010

Sell it. Take the loss now and move on with your life.
posted by shew at 6:28 AM on June 23, 2010 [1 favorite]

The value of a home is determined not by how much you think it's worth, or how much you need to sell it for, but for how much the market will bear. I'm assuming you're working with an agent. Has your agent shown you comparable properties in the area to help you determine your price point? You mentioned that you have theories on why the house was a hard sell, but typically if a house sits on the market for that long with so few bites, the price point is the problem.

You have to weigh your desire to break more or less even on the sale of the home with your desire to unload this burden.

I've been watching too many episodes of My First Sale on HGTV.
posted by litnerd at 6:28 AM on June 23, 2010

If you're taking a loss every month, I'm not sure you should be restricting your sale based on "breaking even". You're not breaking even, because if you wait long enough to "break even" you'll lose more money because of the maintenance costs. You might have to take it on the chin, especially for your health.
posted by Napierzaza at 6:33 AM on June 23, 2010

Response by poster: @kpht - I think my lease agreement stipulates that I can't show the house until the last 60 days of the lease...but I really need to read the fine-print on that. The current tenants know that I'm not in very good shape money-wise, I'm hoping they might be open to letting me market it now instead of later.

After reading the other answers, I think some clarification is needed. By "break even", I'm assuming you mean that I get at least as much as I paid for the house. By that definition, I was trying to "break even" a year and a half ago, but at this point I just need to get out from under the mortgage and dump the house. I'm basically willing to write off ALL equity...but I NEED to recoup enough from a sale to pay the mortgage balance in full...unless someone has a better suggestion.

The question I'm trying to ask isn't "SHOULD I sell my house" or "SHOULD I sell it at a lower price" - I don't have the luxury of choice. The question is "HOW do I get out of this situation in the cleanest, quickest possible manner, given my tight financial constraints and lack of savings". Sorry for the lack of clarity in my initial post.
posted by photo guy at 6:48 AM on June 23, 2010

Yeah, in case it's not clear from kpht's comment, you don't have to wait for the tenants to move out to sell it. Whoever bought it would have to honor their lease, though. So you would probably want to market it as an investment property.
posted by MexicanYenta at 6:49 AM on June 23, 2010

You could also find a realtor who is a property manager, and they could take care of this for you. And also, a good real estate lawyer is worth every penny.
In the state where I live, whoever buys the property doesn't have to honor the lease but give the tenants 30 days to move out.
posted by chocolatetiara at 6:59 AM on June 23, 2010

Given that you apparently have tenants who would rather not move, that could be an opportunity rather than a problem. They could form their own partnership and buy your house. The difference between paying rent and paying a mortgage may be very little. It wouldn't hurt to ask them if that idea interests them.
posted by grizzled at 7:05 AM on June 23, 2010

Tenant laws probably matter here, so knowing what state you live in may make a difference in how mefites can advise you.
posted by rabidsegue at 7:18 AM on June 23, 2010

Strategic default is an option, though discussing it here brings out all sorts of moral points of view.
posted by procrastination at 8:04 AM on June 23, 2010

"HOW do I get out of this situation in the cleanest, quickest possible manner, given my tight financial constraints and lack of savings".

When corporations get into situations like this, they seek bankruptcy protection. They definitely do not throw good money after bad unless they are very confident that things will turn around.

I'm not your lawyer or your financial advisor. I have no idea how your physical location will affect your ability to seek bankruptcy protection. If you don't have any other significant assets to protect, you might want to think about strategic default. Clearly I do not have enough information to strongly suggest any particular solution, but don't exclude the possibility of walking away.
posted by mullacc at 8:07 AM on June 23, 2010

Many landlords in similar positions simply stop paying the mortgage and continue to collect rent from the tenants for as long as possible until the bank forecloses.

Many states now have laws that force foreclosing banks to honor existing tenant leases on foreclosed properties.

Is a "long time" as in " intentions of returning to the U.S. for a long time" longer than a foreclosure would stay on your credit report?

I will point out that in the mortgage contract that exists between you and the bank NOT PAYING THE MORTGAGE **IS** A VALID AND LEGAL OPTION FOR YOU.

The contract you signed is, basically, you pay the mortgage, you keep the house, you don't pay the mortgage, the bank keeps the house. Since it's no longer advantageous to you to pay the mortgage, don't.
posted by de void at 9:31 AM on June 23, 2010

Response by poster: Thanks everyone. While having the house taken away from me is hardly an issue at this point, having a foreclosure on my record could cause some major issues with my future career plans. I'm open to doing anything short of that, but would rather avoid a full-blown foreclosure if possible.

I would consider just walking away, except that I'm assuming that would lead to the above mentioned foreclosure, not to mention that it does seem a bit wrong to simply stop paying unannounced. Then again, that's just me.

I'm looking into marketing the house now as an investment property - hopefully I can still get the minimum needed to pay off the mortgage.
posted by photo guy at 6:07 PM on June 23, 2010

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