I have a Las Vegas property that I currently rent. The house is about $160K upside down, and I lose about $500 every month. I’d like to get it off my back with a short sale when the lease ends in August. What are the good and bad points of a short sale?
With a short sale you’re asking the lender to accept a loss on the loan, but if the value of the property increased the lender would get nothing extra. Little wonder lenders are not thrilled with short sales.
According to RealtyTrac, an online marketplace of foreclosure properties, Nevada posted the nation’s highest state foreclosure rate for the 50th straight month in February. One in every 119 Nevada housing units had a foreclosure filing during the month.
In such circumstances the real question is how to minimize your loss. There are several options to consider.
You might consider offering the property to the tenant with a short sale. Because the local market is so distressed this may actually be attractive to the lender as an alternative to foreclosure and possibly a bigger loss.
If the tenant says No, then start working on a short sale now with the understanding that the tenant’s lease must be honored.
Consider what happens if there’s no short sale and the tenant does not renew the lease. You’ll face even bigger monthly costs.
Would it make any sense for you to occupy the property if the tenant moves out?
Is foreclosure or a short sale even a viable option? Speak with a Nevada attorney for specifics. Also speak with a tax professional. Because this is a rental property, unpaid mortgage debt could be considered “imputed” income, income that may be taxable under federal rules.
It may be that your best option is to extend the tenant’s lease. Yes, this will mean losing $500 a month but that may be a better result than you’d get with a short sale or foreclosure. And besides, perhaps prices will rise.