3/26/10: Today’s Trulia Question

Asked by A. Martinez – A Home Seller In Chicago:

“I own multiple properties and two of them were cited with violations such as the need to replace the porch in both buildings and a possible deconversion. These repairs will be way too costly for me and may not be a able to afford the repairs and possible deconversion. What are my options?”

Mary Answered:
If you are upside down on your loans and have no equity in the properties, then you will have to pursue a short sale. It’s probably best just to dump them as quickly as possible rather than throw good money after bad.

A. Martinez replied:

Hi Mary, thanks for your response to my question regarding my two properties that were cited with building violations. I saw your response that indicated that it’s probably best to dump the buildings vs. throwing good money after bad money. I have been really considering this option as I am upside down on both of my mortgages but it’s a very difficult decision to make being that I have excellent credit and it would break me emotionally to see my credit go down the drain. I want to see if I can buy time from the city in order to make all the necessary repairs. When I bought these properties they were meant to be sold at the time I retire for income and I never thought I would be dealing with this issue now.Thanks so much for your guidance.

Mary Responded:

Hi Alicia,
You know, after I wrote that answer, I felt badly that perhaps I was too harsh. I confess to having a lot of exactly these types of hard conversations nowadays with sellers. So the first thing I want you to know is that you are by no means the only one who has gotten caught in this nightmare – not by a long shot!!

I know you’ve worked hard to build an excellent credit score - and the fact that you are concerned about it tells me that you are a good person just trying to do the right thing. Selling your buildings “short” will unquestionably give you a ding that will take a few years to straighten out. However, a short sale is a much better solution – and much less of a hit on your credit – than a foreclosure or simply ”mailing the keys back” to the lender. (See my blog post “Should You Strategically Default On Your Mortgage“). And if it’s a matter of having money to retire on vs. a lower credit score… Well, to me, anyway, the choice is pretty clear: you need to be able to have money for retirement. You need to be able to keep a roof over your head and food on your table. And those things are much more important than your credit score.

The next thing you need to know is that your lender will not even CONSIDER negotiating a short sale with you as long as your are current with your payments. You will need to be at least 3 months in arrears before they even consider you a problem.

As for the city, I am not such an expert on violations – but I’m pretty sure it would be a big mistake to ignore them. You probably need to go to court, talk to the judge and let him know your situation. As I said, by no means are you alone in this predicament and I’m sure the judge has heard this many, many times.

“I Do Well When YOU Do Well!”
mary!