Is walking away from Investment Properties the same?

4

4walls4me_IHB

New member
<p>Hi Guys!</p>

<p>Is walking away from investment properties the same as walking away from a primary residence? </p>

<p>There is a guy at the office that bragged constantly about his real estate holdings...huffing and puffing about his investment properties. He's really into Rich Dad, Poor Dad if that helps explain his thinking. Anyway, he leveraged his house to buy property and then pulled the money out of those to buy more property. Now that things are going south, he says he can "just walk away" from real estate if things don't get better (he's a bull that <strong>still</strong> thinks real estate is going to start going back up soon).</p>

<p>I know that with a primary residence, aside from a blip on your credit score, you can just walk away. But can you do that will no trouble on secondary properties? </p>

<p>He's otherwise I nice guy and I'm worried he's being more delusional than before. Aside from having his credit obliterated, will he suffer any consequences? </p>

<p>Thank you!</p>
 
<p>"The buyers right to walk away" is first of all a statewide protection for homeowners. Other states may do this, but it is not a federal mandate.</p>

<p>The CA clause pertains to purchase money mortgages of primary residences. I believe that they will go off the property type on the 1003 application and final loan docs. If it was purchased as an investment property than they can lose big time. Now if your acquaintance bought these properties as primary residences, then I am not sure.</p>

<p>If they sucked out cash through refinances, that is exempt from the homeowner protection clause.</p>
 
I believe what you are talking about is a "Non-recourse" loan. If you bought the property and just decided to mail in the keys to the bank, you are fine.





However, in your friend's case....he REFINANCED I am assuming to get more equity in order to purchase more property...by refinancing, your friend loses his "Non-recourse" standing and the Bank, and credit agencies will go after him w/vengeance.





Also, even if one does walk away, whatever the bank ends up losing on his property will be put back to him as a tax bill for ordinary income.





He can paint whatever picture he would like but he's royally screwed.
 
<p>Tell you friend to write the authors of Rich Dad/Poor Dad and ask them what to do. </p>

<p>"Hey, I followed the advice of your stinkin' book and now I'm broke! WTF should I do?"</p>
 
<p>Ya, I kinda figured he'd be in some trouble. Now I know.</p>

<p>Oh well, he's a grown man. I'm sure he'll work it out. (The Rich Dad, Poor Dad obsession really creeps me out though. That man radiates BS). </p>

<p>Thanks for responding :)</p>

<p> </p>
 
I was offered a house at the beginning of the year in a short sale from a distressed investor that bought 5 properties and got the funds from an equity "chain" funding: using her primary residence to buy a 2nd home, using the 2nd to buy a 3rd...until the 5th home, for a time this lady felt like a finance genius (in a bull market everybody thinks that is a genius) she also took money to go to Europe and buy stuff.





But then she fell behind some payments and then she couldn't unload the houses fast enough, I was aware of the issues in the real estate market because I was following home builder stocks, bubble blogs and other readings, I told to her realtor that things didn't look pretty in the future: I told him, economists are predicting a real estate crash, can you second guess them? and he looked to me like if I was from other planet.





I found that the investor and the realtor don't follow the financial world at all or even California past history of real estate bubbles, these people are totally disconnected, the last thing that I heard is that she was trying to sell her properties and was depressed.
 
<p><em> (The Rich Dad, Poor Dad obsession really creeps me out though. That man radiates BS).</em> </p>

<p>That's too bad. I distinctly remember one of the Kiyosaki's Rich Dad moments in his cash flow book. He, a young investor at the time, was bragging about the real estate purchase he bought. The property was upside down. It cost him $100/month to cover the payments on top of the rent he received not including other expenses. Rich Dad's comment, " how many of those deal can you do?". His basic take? Deals that take money out of your pocket are <strong>BAD. </strong></p>

<p>Apparently your friend missed a very basic tenant of the RD/PD books. </p>
 
<em>"Apparently your friend missed a very basic tenant of the RD/PD books."





</em>I was thinking the same thing. Kiyosaki's advice is good, peoples implementation is often bad.
 
<p>Speaking as apartment owner, it is VERY risky to do so. As mentioned....</p>

<p>1. Once you pull the money out it is a "Recourse" loan.</p>

<p>2. That ties that money to your personal assets....</p>

<p>3. If you default, it goes down as a tax liability... </p>

<p>essentially you're screwed.... His best bet is to try to tough it out. But if he's and idiot, he'll have pulled the money out to buy the 100k car and 20k watch....</p>

<p>If he was good about it and SAVED a few dollars he might weather the storm, somehow I don't think he did.</p>

<p>-bix</p>
 
<p>I was wondering if someone on the board can give me some advice:</p>

<p>I have been looking reading this Forum for over a year since I bought a new house in the VOC</p>

<p>Here is my issue;</p>

<p>When I sold my house a year ago I took on the Junior loan.</p>

<p>The first mortgage was at 80% for 464K, the second which I agreed to hold for 2 years was for the (116k) 20% difference.</p>

<p>Now I just found out the house is close to foreclosure, as the homeowner has not made a payment on the first since August.</p>

<p>He has been paying me my payments on time till November.</p>

<p>Also to make matters worse the current value of the house is only 500K</p>

<p>If it was sold I would get nothing.</p>

<p>If I am correct, the second is still a non-recourse loan?</p>

<p>Is there any other way of getting part of my money back.</p>

<p>Any insight would be helpful.</p>

<p> </p>
 
<p>In Florida you could foreclose, as long as you said in your mtg that a default in the 1st was a default in the second. Or, you could sue on the note. I know, I know, you're California, not Fla.</p>

<p>But, in reality, if there's no equity you are almost certainly screwed, here there or anywhere. People who are being foreclosed out of their house typically burn all their other assets first. Leaving you with a judgt and no assets to levy on. Can you bring the first current and have him deed you the property? Probably would be throwing money down a black hole for nothing. Even if there's equity today, there may be none tomorrow. Also a violation of the due on sale clause, but I doubt that lenders would not foreclose due to anything as trivial as that.</p>

<p>What kind of mtg is the first? Fixed, neg am?</p>

<p>Call him up and see if he can continue to pay you $100 or $200 a month forever.</p>

<p>Can you garnish his salary in California?</p>

<p>When you closed, did you check to see whatever assets he had? </p>

<p>Even tho your case is a winner, I would probably not take it because it is so unlikely that you will get even the atty fees spent on me back.</p>

<p>What did you think would happen in 2 years? Maybe you could call them up and offer a 1% 40 year modification, to balloon in 10 years, if only he'll bring the first current.</p>

<p>Something is better than nothing.</p>
 
boom - I would suggest finding a good RE lawyer. I don't know that there is anything you could do, but that would be the person who would know.
 
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