PLEASE HELP...being foreclosed on because property is upside down

[Elaine Goepfert]

Jan 2023 I purchased a property in Cape Coral, FL. I purchased for $395,000 and rehabbed for $70,000. I took out a hard money loan with Kiavi for one year. I put up for sale with no bites then transitioned to a STR strategy then Kiavi told me they don't refinance unless it's a LTR so I found a renter and went to refinance. Right at a year I start the process of a refi and quickly find out that the renter wasn't paying high enough rent to cover Kiavi's requirements so I had to relist the property. I lost the renters due to them not wanting to cooperate for showings. Despite all of this I was still able to find another lender to refinance until the appraisal came in at $445,000 and everything fell apart. When I purchased the property one year earlier Kiavi gave it an ARV of $610,000! I did all the repairs per spec and under budget and was even able to add four palm trees to the front, a pool heater and fence in the backyard which should have made the value go up! However, the area has plummeted in value and I'm now upside down on this house. I've had it listed for months with one showing and one offer of $380,000.

I have never missed a payment but Kiavi will not negotiate their terms and insist on foreclosure and they just informed me they are moving forward with the foreclosure.  I put in $50,000 of my own money not to mention months away from my three kids while working on the home.  I'm proud of the house I created, it's beautiful & I even have a 5.0 rating on Airbnb.  I honestly feel like I've done everything right and am completely stuck.  I'm devastated and if anyone has any words of wisdom here I would just SO APRRECIATE any help/advice I can get.  I just don't know what else I can possibly do.

[Chris Seveney]

Quote from @Elaine Goepfert:

Jan 2023 I purchased a property in Cape Coral, FL. I purchased for $395,000 and rehabbed for $70,000. I took out a hard money loan with Kiavi for one year. I put up for sale with no bites then transitioned to a STR strategy then Kiavi told me they don't refinance unless it's a LTR so I found a renter and went to refinance. Right at a year I start the process of a refi and quickly find out that the renter wasn't paying high enough rent to cover Kiavi's requirements so I had to relist the property. I lost the renters due to them not wanting to cooperate for showings. Despite all of this I was still able to find another lender to refinance until the appraisal came in at $445,000 and everything fell apart. When I purchased the property one year earlier Kiavi gave it an ARV of $610,000! I did all the repairs per spec and under budget and was even able to add four palm trees to the front, a pool heater and fence in the backyard which should have made the value go up! However, the area has plummeted in value and I'm now upside down on this house. I've had it listed for months with one showing and one offer of $380,000.

I have never missed a payment but Kiavi will not negotiate their terms and insist on foreclosure and they just informed me they are moving forward with the foreclosure.  I put in $50,000 of my own money not to mention months away from my three kids while working on the home.  I'm proud of the house I created, it's beautiful & I even have a 5.0 rating on Airbnb.  I honestly feel like I've done everything right and am completely stuck.  I'm devastated and if anyone has any words of wisdom here I would just SO APRRECIATE any help/advice I can get.  I just don't know what else I can possibly do.

 How much do you owe Kiavi?

[Wayne Brooks]

Lee county has one of the fastest foreclosure processes in the state. Back in the crisis days, they called it the Rocket Docket. I don’t know that it’s there yet, but Lee county has the fastest boom and bust cycles in the state.

[Elaine Goepfert]

At this point I'm up to $477,000 (It was at $425,000 when this started in January.  Unreal how quickly that jacked up).

Is this just something that happens to some people?  What kills me is I don't know what else I could have done to avoid this?  I made all my payments, got it rehabbed in 3 months, got renters immediately.  I didn't miss a beat but with values falling so much in the area I just don't understand what else I could have done.  It's devasting.

[Minna Reid]

Yes this happens. Especially in volatile markets like this one. 

Have you considered the possibility of a short sale? Lenders get more open minded to workouts once they are no longer getting paid, btw. 

[Elaine Goepfert]

I've begged several times for them to please just refinance me.  I never missed a single payment and they made $50,000 in interest off of me over the last year so instead of foreclosing on me recking my credit for the next 7 years and them being forced to sell a house for less than what I still owe, it seems like a great win-win option but I was shot down over and over because the appraisal was just too low.  

I did ask about short sale and they said they would need to see a HUD statement and purchase agreement to do that but I was confused how I would generate those two items without an agreement from Kiavi on the short sale amount? I could only agree to the purchase price if I knew that Kiavi would accept the short sale but Kiavi won't entertain doing a short sale without a purchase agreement. I've gone in circles on this. That's why I'm reaching out, I just don't understand how I can be so stuck??? I feel like I'm missing something. How can I put $50,000 and pay another $50,000 in interest and still be foreclosed on in one year? It's a nightmare.

[Shane Dreffs]

Are you renting it as an STR right now? There are some lenders that will loan on the STR rental amount. It will depend on the ratio usually around 1.25 or 1.5

[Stetson Miller]

@Elaine Goepfert How confident are you that the new appraisal represents the correct valuation? The changes in the market we've see don't equate to the difference in appraisals you received over the stated time period. Either the first appraisal received was absurdly high and the new one represents the accurate value, vice versa, or a combination of both. Even though you may have to come out of pocket for the expense, it may be worth asking if they would consider a second opinion on the appraisal. If it comes back the same, you're back to square one, but in either case, now is definitely the time that you need to be contacting an attorney, likely one that can help with the real estate side, and another to review bankruptcy options

[Chris Seveney]

Quote from @Elaine Goepfert:

I've begged several times for them to please just refinance me.  I never missed a single payment and they made $50,000 in interest off of me over the last year so instead of foreclosing on me recking my credit for the next 7 years and them being forced to sell a house for less than what I still owe, it seems like a great win-win option but I was shot down over and over because the appraisal was just too low.  

I did ask about short sale and they said they would need to see a HUD statement and purchase agreement to do that but I was confused how I would generate those two items without an agreement from Kiavi on the short sale amount? I could only agree to the purchase price if I knew that Kiavi would accept the short sale but Kiavi won't entertain doing a short sale without a purchase agreement. I've gone in circles on this. That's why I'm reaching out, I just don't understand how I can be so stuck??? I feel like I'm missing something. How can I put $50,000 and pay another $50,000 in interest and still be foreclosed on in one year? It's a nightmare.

 unfortunately this happens a lot to people because they do not understand the risk involved. If your best offer is $380k and you owe $477 and its probably now default interest at 18% let it go to foreclosure. 

What would be interesting is to see your original spreadsheet you put together to show how much money you would make on this and how much you anticipated for repairs.  Where you clearly went wrong is you bought a home for $390k and after renovating it its worth $445k or best offer of $380k.

Also realize you probably also signed a personal guarantee so any amounts owed they can come after you for, and if you have equity in your primary residence they could potentially foreclose on that (depending on what state it is).

[Jay Hinrichs]

check with other lenders.. I would think very long and hard about filing a BK when your upside down.  I suspect 50k loss and you probably have a PG.. so really depends if Kiavi  bizz practice is to come after folks on the PG if they are still owed money.

@Wayne Brooks  As Wayne mentioned that area is one of the biggest boom bust areas in the entire US I have been following it since the mid 80s when I went there to scope out how they could have 250k lots in Leigh acres .. 

And in the GFC it was one of the most crushed markets in the US if not the world.. I was buying brand new construction homes at the foreclosure sale for 30 to 50k.  2 years before the same houses were selling for 200 to 300k..  its supply demand.. and right now with the FOMO and rush of investor into that area its created again a huge over supply and the market will correct and that means values will drop like your seeing.. 

[Elaine Goepfert]

@Chris Seveney My Original Spread was this..

$395,000 + $70,000 (repairs) = $465,000 - $50,000 (down payment) = $415,000 + $10,000 (fees) = $425,000 Loan

$610,000 ARV - $425,000 = $185,000 (minus 3 months of holding costs & fees) so I was feeling pretty good about the purchase.

I also got these numbers from my realtor & ran them by a real estate investing group (a very expensive one) that I was a member of and got great feedback from almost everyone except one person thought the appraisal was inflated.  So I didn't go into light heartedly.  I did my due diligence, are at least I thought I did.  I also had a private investor on the deal (who I just paid off separately) and the numbers looked good to her as well.  It all SEEMED like a great plan.  Also, I have my general contractors license and make my living as a commercial senior construction project manager remodeling multi-family buildings and hotels nationally.  I've been in construction for 25 years so I know a thing or two about renovations.  

If I were to go back and do it again I would sell for much lower price just to offload it but I had no way to know that my appraisal would dip $165,000 (!) in ONE year.  Especially since I did extra work on the property including adding palm trees to the front and fenced in the backyard which SHOULD have made it sell for even higher or at least projected.  At least that's what I thought.

@Shane Dreffs I do hold is as a STR right now but rents are much lower than projected. Apparently this area has dipped 40% in STR rentals over the last year. I've looked into those STR lenders and because of this they won't touch it either.

@Stetson Miller I feel it's a bad combination of both a inflated appraisal at the top and maybe a low appraisal now.  However, according to my realtor it's crickets right now in the area and has been for a few months so maybe not too far off.  I did consider paying for another appraisal but after looking at several comps it appears it most likely would be a waste of time and money.  Bad luck I guess.

I really do appreciate everyone's responses and ideas, thank you all for your time and efforts trying to help me. 

[Bruce Woodruff]

Not much to add, just wanted to express condolences...this sometimes happens in this game, even to the best of us.

My only advice would be to stall and buy some time. See a RE attorney and use every trick in the book to put off the FC or BK. Depending on the results of the election and evn the time leading up to it, we could see Interest rates drop, and/or home values rise...I'm not saying for sure, but I've seen stranger things for sure.

Doing anything now just leaves you with no good options....and I don't believe in putting off the inevitable, but there may be other options that arise as a few more months go by. Definitely pay for an hour or two with a good RE attorney though, the sooner the better....

Best of luck!

[Minna Reid]

Quote from @Elaine Goepfert:

I've begged several times for them to please just refinance me.  I never missed a single payment and they made $50,000 in interest off of me over the last year so instead of foreclosing on me recking my credit for the next 7 years and them being forced to sell a house for less than what I still owe, it seems like a great win-win option but I was shot down over and over because the appraisal was just too low.  

I did ask about short sale and they said they would need to see a HUD statement and purchase agreement to do that but I was confused how I would generate those two items without an agreement from Kiavi on the short sale amount? I could only agree to the purchase price if I knew that Kiavi would accept the short sale but Kiavi won't entertain doing a short sale without a purchase agreement. I've gone in circles on this. That's why I'm reaching out, I just don't understand how I can be so stuck??? I feel like I'm missing something. How can I put $50,000 and pay another $50,000 in interest and still be foreclosed on in one year? It's a nightmare.

 They cant approve your short sale because there is no sale to approve. Find yourself a real estate agent that understands short sales ASAP, list the house at a price it will sell, find a buyer and go under contract subject to the short sale approval. Then approach your lender with the short sale.  You are going to need help as you do not know what you are doing. An experienced short sale agent near you can handle all this for you.Find one today.  Feel free to PM if you need help finding one. 

[Elaine Goepfert]

@Minna Reid thank you for that!  Great advice.  I'm reaching out to my real estate agent right now to see if she knows anything about it and if she doesn't I'll definitely reach out to you because you are 100% right, I know absolutely nothing about short sales or how any of that works.  

[V.G Jason]

Quote from @Minna Reid:

Quote from @Elaine Goepfert:

I've begged several times for them to please just refinance me.  I never missed a single payment and they made $50,000 in interest off of me over the last year so instead of foreclosing on me recking my credit for the next 7 years and them being forced to sell a house for less than what I still owe, it seems like a great win-win option but I was shot down over and over because the appraisal was just too low.  

I did ask about short sale and they said they would need to see a HUD statement and purchase agreement to do that but I was confused how I would generate those two items without an agreement from Kiavi on the short sale amount? I could only agree to the purchase price if I knew that Kiavi would accept the short sale but Kiavi won't entertain doing a short sale without a purchase agreement. I've gone in circles on this. That's why I'm reaching out, I just don't understand how I can be so stuck??? I feel like I'm missing something. How can I put $50,000 and pay another $50,000 in interest and still be foreclosed on in one year? It's a nightmare.

 They cant approve your short sale because there is no sale to approve. Find yourself a real estate agent that understands short sales ASAP, list the house at a price it will sell, find a buyer and go under contract subject to the short sale approval. Then approach your lender with the short sale.  You are going to need help as you do not know what you are doing. An experienced short sale agent near you can handle all this for you.Find one today.  Feel free to PM if you need help finding one. 

 This is probably the route to go.

And yes this does happen, SW Florida especially cape coral is a definition of a falling knife. I know @Bob Stevens guy is all  cleveland stuff but we've said this for the past 6-12 months-- this area is going to crash. Vegas was like this too but they're getting other industries in there too be more resilient.

 Very unfortunate what happened, hope you get out of this as easy as possible.

[Jay Hinrichs]

Quote from @V.G Jason:

Quote from @Minna Reid:

Quote from @Elaine Goepfert:

I've begged several times for them to please just refinance me.  I never missed a single payment and they made $50,000 in interest off of me over the last year so instead of foreclosing on me recking my credit for the next 7 years and them being forced to sell a house for less than what I still owe, it seems like a great win-win option but I was shot down over and over because the appraisal was just too low.  

I did ask about short sale and they said they would need to see a HUD statement and purchase agreement to do that but I was confused how I would generate those two items without an agreement from Kiavi on the short sale amount? I could only agree to the purchase price if I knew that Kiavi would accept the short sale but Kiavi won't entertain doing a short sale without a purchase agreement. I've gone in circles on this. That's why I'm reaching out, I just don't understand how I can be so stuck??? I feel like I'm missing something. How can I put $50,000 and pay another $50,000 in interest and still be foreclosed on in one year? It's a nightmare.

 They cant approve your short sale because there is no sale to approve. Find yourself a real estate agent that understands short sales ASAP, list the house at a price it will sell, find a buyer and go under contract subject to the short sale approval. Then approach your lender with the short sale.  You are going to need help as you do not know what you are doing. An experienced short sale agent near you can handle all this for you.Find one today.  Feel free to PM if you need help finding one. 

 This is probably the route to go.

And yes this does happen, SW Florida especially cape coral is a definition of a falling knife. I know @Bob Stevens guy is all  cleveland stuff but we've said this for the past 6-12 months-- this area is going to crash. Vegas was like this too but they're getting other industries in there too be more resilient.

 Very unfortunate what happened, hope you get out of this as easy as possible.

V.G> the issue with this area Lee county.. has a lot to do with supply.. in the early 50s developers put in literally 500k lots.  Lehigh Acres has 250k lots itself. So there are thousands upon thousands of vacant lots and these lots have been traded since the 50s  at tax sales or land guys buying cheap and selling for more on terms etc etc.. Compared to Vegas and there is hardly any land left so you wont see the same dynamics to Vegas as you did in the Crash.. And Lee County just had a flood of folks come in because of all these vacant lots then folks marketing it the last 10 years hard. So right now its over built with way to much inventory and now prices are falling HARD

[Chris Seveney]

Quote from @Jay Hinrichs:

Quote from @V.G Jason:

Quote from @Minna Reid:

Quote from @Elaine Goepfert:

I've begged several times for them to please just refinance me.  I never missed a single payment and they made $50,000 in interest off of me over the last year so instead of foreclosing on me recking my credit for the next 7 years and them being forced to sell a house for less than what I still owe, it seems like a great win-win option but I was shot down over and over because the appraisal was just too low.  

I did ask about short sale and they said they would need to see a HUD statement and purchase agreement to do that but I was confused how I would generate those two items without an agreement from Kiavi on the short sale amount? I could only agree to the purchase price if I knew that Kiavi would accept the short sale but Kiavi won't entertain doing a short sale without a purchase agreement. I've gone in circles on this. That's why I'm reaching out, I just don't understand how I can be so stuck??? I feel like I'm missing something. How can I put $50,000 and pay another $50,000 in interest and still be foreclosed on in one year? It's a nightmare.

 They cant approve your short sale because there is no sale to approve. Find yourself a real estate agent that understands short sales ASAP, list the house at a price it will sell, find a buyer and go under contract subject to the short sale approval. Then approach your lender with the short sale.  You are going to need help as you do not know what you are doing. An experienced short sale agent near you can handle all this for you.Find one today.  Feel free to PM if you need help finding one. 

 This is probably the route to go.

And yes this does happen, SW Florida especially cape coral is a definition of a falling knife. I know @Bob Stevens guy is all  cleveland stuff but we've said this for the past 6-12 months-- this area is going to crash. Vegas was like this too but they're getting other industries in there too be more resilient.

 Very unfortunate what happened, hope you get out of this as easy as possible.

V.G> the issue with this area Lee county.. has a lot to do with supply.. in the early 50s developers put in literally 500k lots.  Lehigh Acres has 250k lots itself. So there are thousands upon thousands of vacant lots and these lots have been traded since the 50s  at tax sales or land guys buying cheap and selling for more on terms etc etc.. Compared to Vegas and there is hardly any land left so you wont see the same dynamics to Vegas as you did in the Crash.. And Lee County just had a flood of folks come in because of all these vacant lots then folks marketing it the last 10 years hard. So right now its over built with way to much inventory and now prices are falling HARD

 wait. your saying home prices can go down? I was never told this.

[Joe S.]

I know it’s late to point this out now, but for other viewers it might help.
 

Kavi does appraisals or can do appraisals on an empty property and if you just recently finished the rehab it could show better. Also the appraiser can do a rent projection that Kavi can use. We have had more than one appraisal where the appraiser gave a rent projection more than what a local Property Manager could rent it for. This was good since Kavi does not make you have a lease in place for the refinance. Also, I would encourage any one that I remotely cared about to start refinance as soon as possible and not wait for a whole year just because you have a year to refinance.

[Nicholas L.]

@Jay Hinrichs

@Chris Seveney

this is not my area of expertise but OP said "they don't refinance unless it's a LTR"

i don't understand this. if Kiavi gets paid off what does it matter, whether the property is an LTR or STR?

maybe OP needs an attorney to look at whatever she signed?

[Jay Hinrichs]

Quote from @Nicholas L.:

@Jay Hinrichs

@Chris Seveney

this is not my area of expertise but OP said "they don't refinance unless it's a LTR"

i don't understand this. if Kiavi gets paid off what does it matter, whether the property is an LTR or STR?

maybe OP needs an attorney to look at whatever she signed?

I think the OP was referring to finding a new lender.. and or if its Kiavi itself for the refi.. then yes many lenders will NOT refi or loan on STR.  I have one client with a shared housing  pad split and those are really tough to get financing on I would refi first before you pad split.

[Nicholas L.]

@Jay Hinrichs

right - but she did say "the renter wasn't paying high enough rent to cover Kiavi's requirements"

so i remain confused.

before BK or FC, i think worth (1) talking to an attorney to see what she signed with Kiavi, and (2) calling another lender (or better yet, 10) and seeing what's available

a few hundred for an attorney and $500-1000 for an appraisal - painful to keep spending but i think worth it

still missing info here

[Jay Hinrichs]

Quote from @Nicholas L.:

@Jay Hinrichs

right - but she did say "the renter wasn't paying high enough rent to cover Kiavi's requirements"

so i remain confused.

before BK or FC, i think worth (1) talking to an attorney to see what she signed with Kiavi, and (2) calling another lender (or better yet, 10) and seeing what's available

a few hundred for an attorney and $500-1000 for an appraisal - painful to keep spending but i think worth it

still missing info here

kiavi is just like me a private lender and not regulated. while a tad bigger than us :)  they have a lot of lattitude just like I do to make up my own rules as we go along.. Keep that in mind.

[Don Konipol]

First, a couple of things may have occurred. The analytics used to assess ARV may have been faulty and led to a falsely high valuation. Second, the volatile market may have peaked at time of purchase and fallen since.

When people owned homes for 30 years and paid off the mortgage volatility didn’t matter, over a 30 year period the home had increased in value 400%.  

‘Purchase, fix, and sell” is a BUSINESS, not homeownership and not investment. As such in order to survive in business one must have a number of deals going so that a loss in one can be offset by profits in the others.  In other words, over the course of time the business owner will hits bumps in the road where they lose money.  Like a retailer who needs to sell “dead” inventory at a large loss.  If he has only one product in inventory and it’s not selling, then he has no profitable products to offset the loss. 

STR is also a BUSINESS, the investment aspect is incidental. Area demand can change overnight, new competition can move in, oversupply can plummet nightly rates.

Lastly, the OP is, in my opinion, over leveraged.  $50,000 equity into a $475,000 deal is just under 90% leverage.  Especially for someone doing it for the first time, there’s just no “forgiveness” in the equation; no “equity cushion”. 

So the reality is the OP has three realistic options

1. Short sale (best option)

2. Allow foreclosure and possible bankruptcy to get out of deficiency judgement

3. Negotiate deed in lieu which may require cash payment to lender to make up some negative equity. 

[Jay Hinrichs]

Quote from @Chris Seveney:

Quote from @Jay Hinrichs:

Quote from @V.G Jason:

Quote from @Minna Reid:

Quote from @Elaine Goepfert:

I've begged several times for them to please just refinance me.  I never missed a single payment and they made $50,000 in interest off of me over the last year so instead of foreclosing on me recking my credit for the next 7 years and them being forced to sell a house for less than what I still owe, it seems like a great win-win option but I was shot down over and over because the appraisal was just too low.  

I did ask about short sale and they said they would need to see a HUD statement and purchase agreement to do that but I was confused how I would generate those two items without an agreement from Kiavi on the short sale amount? I could only agree to the purchase price if I knew that Kiavi would accept the short sale but Kiavi won't entertain doing a short sale without a purchase agreement. I've gone in circles on this. That's why I'm reaching out, I just don't understand how I can be so stuck??? I feel like I'm missing something. How can I put $50,000 and pay another $50,000 in interest and still be foreclosed on in one year? It's a nightmare.

 They cant approve your short sale because there is no sale to approve. Find yourself a real estate agent that understands short sales ASAP, list the house at a price it will sell, find a buyer and go under contract subject to the short sale approval. Then approach your lender with the short sale.  You are going to need help as you do not know what you are doing. An experienced short sale agent near you can handle all this for you.Find one today.  Feel free to PM if you need help finding one. 

 This is probably the route to go.

And yes this does happen, SW Florida especially cape coral is a definition of a falling knife. I know @Bob Stevens guy is all  cleveland stuff but we've said this for the past 6-12 months-- this area is going to crash. Vegas was like this too but they're getting other industries in there too be more resilient.

 Very unfortunate what happened, hope you get out of this as easy as possible.

V.G> the issue with this area Lee county.. has a lot to do with supply.. in the early 50s developers put in literally 500k lots.  Lehigh Acres has 250k lots itself. So there are thousands upon thousands of vacant lots and these lots have been traded since the 50s  at tax sales or land guys buying cheap and selling for more on terms etc etc.. Compared to Vegas and there is hardly any land left so you wont see the same dynamics to Vegas as you did in the Crash.. And Lee County just had a flood of folks come in because of all these vacant lots then folks marketing it the last 10 years hard. So right now its over built with way to much inventory and now prices are falling HARD

 wait. your saying home prices can go down? I was never told this.

Chris in 2007 when things started to crater there was a builder from AL that had 100 plus specs in Lehigh and Cape Coral.. they had been selling them at 200 to 250k .. I looked at them in 08 and got into contract for 125k each thinking what a deal.. one year later I was buying the same houses at the courthouse steps for 30 to 50k each.. I mean that market can melt down like no other because as I have said thousands upon thousands of vacant lots that can be bought very cheap any day of the week.. so perfect target for these builders to suck in the rental prop crowd with low down payments etc.. Now this one obviously given the price is above that.. but still market flooded with inventory will drive prices right on down.   Its really the only thing that has kept values in Portland Oregon up.. cant find ANY land or lots basically. its all odds and ends at this point. So shortage of inventory prices remain firm or go up.. in the same time this has gone down a few of my floor planes that were 600k 3 years ago I just sold exact same floor plan for 850k closed 7 of them Quarter 3..

[Andrew B.]

What is the difference between the appraisal and what you need to refinance? You can bring cash to the table to facilitate the refi by using savings, loan against 401k, and/or getting another loan against some other asset. 

Before you do that, you need to make sure that you're not throwing good money after bad money...thats an entirely different discussion. 

[Drew Sygit]

You could also approach lender about a deed-in-lieu of foreclosure IF they will agree in writing NOT to personally pursue you for any loss.