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Help for the Rental Property Owner - Is There Such a Thing
We all know how difficult it's been in this economy. The real estate market has taken a huge hit with record foreclosures, a failing mortgage industry and homeowners seeing their home equity disappear. Many homeowners who are struggling to make their mortgage payment have been forced to sell their property. Of course in this real estate market scenario there is one fatal flaw; due to the huge drop in homes prices most homeowners cannot sell because they owe the bank more than their house is worth. As a result, we are seeing the dramatic rise in short sales. Luckily homeowners are finding some relief by refinancing through one of the loan modification programs available for struggling homeowners. But from what current statistic show the percentage of applicants actually completing a successful loan modification refinance is very low. The current administration is heavily focused on keeping homeowners in their homes, but it may not be enough.
When the real estate market was good, many people were looking to get into home ownership and take advantage of the favorable lender environment. In another corner, many investors were buying up rental properties at record pace to capture the low interest rates, "zero downs", 100% financing and attractive ARM's not normally available for rental properties. And with so many baby boomers on the horizon, many were buying as second homes for their future, but using them as rentals for the short term. Of course, all assuming the market would continue to go up, equities would continue to rise and they would have retirement funds in abundance. This started the huge unnatural rental housing inventory we are seeing now.
Unfortunately the real estate market took a downward spiral and many of these investors are now holding onto investment properties that have lost much of their value, have mortgages set to re-adjust at higher rates and are now becoming forced to become a long term landlord.
Many have tried to apply for the same loan modification or refinance programs that are being offer to homeowners in their primary residence, only to find out that most of these programs do not apply to properties in the category of "investment properties", especially if the original financing terms were categorizes as a "second home" and now the property is used as a rental.
Also if a second mortgage is attached to the rental it can almost be impossible to get the second lien holder to subordinate and allow the 1st mortgage to be modified. Nor would it be easy to get the first lien holder to consolidate 1st and 2nd mortgages together as this would most likely cause an upside down mortgage (over 100% financing). As a result there are not many options for a rental property investor other than to try and stay afloat and hope their tenant never moves out. Or lose your property to a quick sell (hoping to break even), a short sale or worse foreclosure.
To me its interesting this administration has not given much thought to the needs of rental property investors, as this group of people are not only helping the economy by offering affordable housing to many that have lost their homes, but also to the fact that these investors create many jobs in the building industry, supply income to the state and city by way of property tax revenues, banks, tradesmen, carpenters, real estate companies and property management companies.
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