Posted on May 15, 2012 by Ilyce Glink and Samuel Tamkin

Q: We own a home in Georgia, but due to a job change, my husband moved out of state and took a large pay cut. I stayed in the home for a year after he moved and we depleted our savings during that time.

We were finally able to rent the home, but the rent does not cover our expenses on the home. Now the mortgage company will not accept our request for a loan modification. We are in the arrears since January of this year. I am truly perplexed why the mortgage company will not work with us. Isn’t it to their advantage to just take the home? We have an FHA loan. And, what about the renters who just moved in?

A: We’re sorry you have had such financial difficulties over the past couple of years. Now that you have moved out of the home, your options may be more limited and you may have to make some hard choices.

You stopped making payments to your lender in January and now the lender has the right to foreclose on the home, sell it and use those proceeds to pay whatever is owed on the debt on the home. Georgia is one of those states that allows for a rather quick foreclosure process. While in some states, the foreclosure process goes through the courts and can take quite some time to go from non-payment to a home sale, in your situation, it could take just six months or less.

Now that you have leased the home to tenants, your lender considers the home to be an investment/rental property. Most home loan modification programs and loan foreclosure avoidance programs have been set up to keep homeowners in their principal residence. Making Home Affordable (www.makinghomeaffordable.gov) doesn’t help real estate investors – even though that isn’t what you intended to be.

If you are looking for help in this market with your second home, rental home or other investment real estate property, you might be out of luck as few lenders are willing to help borrowers with loan modifications or loan foreclosure avoidance programs. You will have to contact your own lender directly, and since you are months behind in your mortgage. the lender may not feel you qualify for an existing program.

You still have the ability to sell the home, even if the sale is a short sale where the proceeds from the sale are less than what you owe the lender. If you sell the home, you will then get rid of having the home and the issues that go along with owning it, including the debt.

If a short sale does not result in enough money to pay off the debt to the lender. the resulting balance is called a deficiency. In some states, the lender will be unable to pursue you for the deficiency – that is the amount you still owe the lender after the sale of the home. In states where deficiency judgments against borrowers are allowed, the lender can sue you for the amount you still owe and can attempt to collect that debt for years to come.

In your situation, you can wait for the lender to foreclose or you can try to sell the home. If you are successful in selling the home, your credit will have a black mark on it, but your credit history won’t suffer as much as if the home is lost through a foreclosure .

As for your tenant, you are now well into positive balance on your home budget. You’ve stopped paying the lender and you’re collecting rent on the home. It’s time for you to make up your mind as to whether you want to keep the home or get rid of it.

If you plan to keep the home, you will have to make your monthly payments to your lender and may have to come up with money to bring your loan current. If you don’t want to keep the home, then you will have to work to sell it. You can look for a real estate agent in your area to help you in the sale of the home. You will also then have to work with your tenant to have them move out when the time comes.

Rest assured that getting a lender ’s approval for a short sale can take some time so that you should be able to give your tenants about three or four weeks’ notice before needing them to move out and give the buyer’s of your home possession to it. There are also new laws in place that allow tenants to say even if the landlord goes into foreclosure .

You may also want to talk to a real estate attorney to give you some assistance in the process and review any documents you signed with your tenant. If you signed a lease with your tenants, they may not want to move out until the term of their lease is up. You may have to pay them some money to get them to move out early, or allow them to pay their rent directly to your lender .

Good luck.

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