Author Topic: Marrying a woman with a condo that's figuratively underwater  (Read 5076 times)

iannj

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Marrying a woman with a condo that's figuratively underwater
« on: December 20, 2013, 05:03:17 AM »
I appreciate you clicking and taking the time to read.

My fiancée bought a condo at about the peak of the market in 2005 when she was 22. It's now pretty severely underwater. She still owes about $130,000 on it and on a good day, it's worth about $100,000. The interest rate is 5.25% - refinancing is not an option because she owes more than it's worth.

We've been teaching English outside of the U.S. for the last year and renting it out for $1,200/month. We will be moving back to the U.S. in March (although probably to a different state). The current tenants have signed a new lease through August.

With the total cost of mortgage, association dues, insurance and taxes, she loses about $160/month.

We were in kind of a rush to find a renter before leaving the country so we can probably raise the rates a little bit when we get back, but I don't think we could break even unless we sink some money into it.

What can/should we do with it?

fodder69

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Re: Marrying a woman with a condo that's figuratively underwater
« Reply #1 on: December 20, 2013, 06:44:28 AM »
Can you apply for a loan modification? Probably have to jump through hoops but might be worth it.

Otherwise, my not very valuable opinion is to just keep going with renting it and wait for the value or the equity go up enough that you can refinance it.

willn

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Re: Marrying a woman with a condo that's figuratively underwater
« Reply #2 on: December 20, 2013, 06:49:42 AM »
How did you come up with the 100k value?  What area is it in?  Have you had a realtor pull comparable sales of nearby units? Prices were high then but the peak of housing prices in most areas was later than 2005, so I'm wondering if there are other issues with the condo.  Bad association management?  Lawsuits?  Large levies?


Another Reader

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Re: Marrying a woman with a condo that's figuratively underwater
« Reply #3 on: December 20, 2013, 07:17:57 AM »
If the loan is owned by Fannie Mae or Freddie Mac, she might be eligible for a HARP refinance.  She should contact the loan servicer.  With the rise in rates and the fact the property is not owner-occupied, this option may not be of much help, but it's worth a call to the loan servicer.  She could try to short sale, but with a tenant in place, that can be difficult.  A short sale would affect her credit.  However, if the market is not improving in the location of the condo, I would at least consider that.

arebelspy

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Re: Marrying a woman with a condo that's figuratively underwater
« Reply #4 on: December 20, 2013, 07:20:41 AM »
With the total cost of mortgage, association dues, insurance and taxes, she loses about $160/month.

Then when you add in a random month where it's empty (and she loses an extra 1200 from having no rent that month), repairs/maintenance, turnover costs, etc. you're looking at losing maybe 300+/mo...

If you had to come out of pocket 30k to sell the place, that's a 12% return on your money not losing that $300/mo.  On the other hand, what do you think her market is going to do?  Do you expect it to gain quit a bit of value in the next year or two?

Also, 30k isn't "pretty severely underwater" for something bought in 05.  Cheer up, your position isn't that bad.  ;)

You may be able to refi under HARP despite being underwater - you should look into refinancing, not assume you can't due to being underwater. 

Good luck!
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fodder69

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Re: Marrying a woman with a condo that's figuratively underwater
« Reply #5 on: December 20, 2013, 08:47:24 AM »
Quote
If you had to come out of pocket 30k to sell the place, that's a 12% return on your money not losing that $300/mo.

Not sure I really understand what you mean by this. Just curious how you are working those numbers.

It also occurs to me that the value seems low. For a place you can rent for $1200 or a little more even, that seems low. Although you didn't mention the condo fees which might change the calculations but it seems like the value to rent ratio is pretty good.

MissStache

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Re: Marrying a woman with a condo that's figuratively underwater
« Reply #6 on: December 20, 2013, 09:27:31 AM »

It also occurs to me that the value seems low. For a place you can rent for $1200 or a little more even, that seems low. Although you didn't mention the condo fees which might change the calculations but it seems like the value to rent ratio is pretty good.

I agree.  $1200 is a lot for rent in a condo, which would make it seem like the overall housing values would be equally high.  Have you actually had it appraised?  You may be surprised.

CommonCents

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Re: Marrying a woman with a condo that's figuratively underwater
« Reply #7 on: December 20, 2013, 11:17:56 AM »
With the total cost of mortgage, association dues, insurance and taxes, she loses about $160/month.

Can you clarify this?  She's paying off principal every month.  Do you mean losing $160 before or after you consider the amount going to principal?  Basically does she write checks $160 larger than the income (but then, after accounting for principal she's in the black) or $160+principal larger than the income?

Lans Holman

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Re: Marrying a woman with a condo that's figuratively underwater
« Reply #8 on: December 20, 2013, 12:07:59 PM »
Quote
If you had to come out of pocket 30k to sell the place, that's a 12% return on your money not losing that $300/mo.

Not sure I really understand what you mean by this. Just curious how you are working those numbers.

I assume what he's doing there is comparing the ~$3600 she's losing per year with the 30k they would have to eat right now if they sold the place and paid off the mortgage.  That would make it seem like a pretty good "investment" to spend the money on getting free of this place.  CommonCents makes an important point, though, that if $160 a month or more is going toward principal, it's not really being lost and although it's obviously not ideal it still might make more sense to think of that loss just as a kind of forced savings and wait a while, paying down principal and hoping the values turn around.

aclarridge

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Re: Marrying a woman with a condo that's figuratively underwater
« Reply #9 on: December 20, 2013, 12:08:25 PM »
Also, 30k isn't "pretty severely underwater" for something bought in 05.  Cheer up, your position isn't that bad.  ;)

+1! As far as financial blunders go, that one is kinda cute.

arebelspy

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Re: Marrying a woman with a condo that's figuratively underwater
« Reply #10 on: December 20, 2013, 01:12:43 PM »
Also, 30k isn't "pretty severely underwater" for something bought in 05.  Cheer up, your position isn't that bad.  ;)

+1! As far as financial blunders go, that one is kinda cute.

Well that makes it sound a little patronizing, but in essence what I meant to say is that it could be much worse, many of us have overcome many worse mistakes than that, and not to let it get you down.  :)
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iannj

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Re: Marrying a woman with a condo that's figuratively underwater
« Reply #11 on: December 20, 2013, 07:20:20 PM »
Wow. Thanks for all of the constructive replies. I knew better, but she was convinced you would just tell me she was stupid she was. I would have responded sooner but I was sleeping.

I'll try to answer the questions in order:

Can you apply for a loan modification? (fodder69)

She started this process last year as we started talking about moving. She's not eligible because she was told you need to display an actual financial hardship. Because she's made all of her payments on time, they say it's not a financial hardship. One requirement is also that she maintains residence there.

How did you come up with the 100k value?  What area is it in? (Willn)
It's made up based on (lots) of research she did of condos in the area. It's in a suburb of Minneapolis.

If the loan is owned by Fannie Mae or Freddie Mac, she might be eligible for a HARP refinance... She could try to short sale, (Another Reader)
Unfortunately, it's not Fannie or Freddie. I believe the short sale had similar requirements to loan modification where because she has made all of her payments on time, she can obviously afford it. The other reason was taxes. I think she said the short sale would have made her responsible for ~$10,000 in taxes.

arebelspy
Sitting empty is our worry, especially because we don't plan to move back to the state where the condo is. Hiring a management company would cost more money and while my folks are still there, they're getting up there in age and I don't want to ask them to take on something like that.

I wrote and then edited... I had $160k in my mind as the amount still owed until she corrected me. 62.5% value to amount owed seemed pretty bad. You're right, though, 77% doesn't seem so insurmountable.

HARP isn't an option, mortgage isn't Fanny/Freddie. 

Have you actually had it appraised?  You may be surprised. (Miss Stache)
We haven't. She started talking to a realtor last year while I was working in another state and before we were engaged so I wasn't very involved at that point, but the realtor's suggestion was to stop making payments.

Do you mean losing $160 before or after you consider the amount going to principal?  Basically does she write checks $160 larger than the income (but then, after accounting for principal she's in the black) or $160+principal larger than the income? (Common Cents / Lans Holman)

Lans, you gave me too much credit. Admittedly, I was just looking at the cash flow. If my quick calculations are correct, she's in the black almost $350/month when accounting for principal paid assuming the place is rented every month.

+1! As far as financial blunders go, that one is kinda cute. (FI40 / arbelspry)

This made me laugh. I'm not too worried about this ruining us long-term, but I'd really like to make sure we're doing what we should do as soon as we can do it.




iannj

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Re: Marrying a woman with a condo that's figuratively underwater
« Reply #12 on: December 20, 2013, 07:35:09 PM »
Adding a little more information:

She pays $1060 towards her mortgage every month, this includes her taxes.
She pays $304 for association dues every month (way too high for what they get, imho, but that's another story).

It's a 2 bed/1 bath unit that's kind of like a townhouse.

If we move back to the area, we will find a six-month lease somewhere and then move in if the current tenants move out.

arebelspy

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Re: Marrying a woman with a condo that's figuratively underwater
« Reply #13 on: December 20, 2013, 09:08:23 PM »
Lots of loans are sold to Fannie/Freddie and may be eligible for HARP refi even if it was originally lent by another bank.  Check into your loan specifically (call your loan provider) to see if they have any programs that you're eligible for.
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dragoncar

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Re: Marrying a woman with a condo that's figuratively underwater
« Reply #14 on: December 20, 2013, 10:15:31 PM »
Better than marrying a woman with a condo that's literally underwater

arebelspy

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Re: Marrying a woman with a condo that's figuratively underwater
« Reply #15 on: December 21, 2013, 07:58:00 AM »
Better than marrying a woman with a condo that's literally underwater

Never had the mermaid fantasy, huh?  ;)

We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with two kids.
If you want to know more about us, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
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