What are the options?

[Philip Rowe]

I have a customer who bought a property a little over a year ago with a 100% loan (80/20). They got a good deal on the property so the loan amount is right in line with the market ($265 K). The interest rate is collectively around 9.1% and when he got the loan he had good credit (720). Until recently he had made his payments on time but has now gotten behind. He has a month or two of 30 day lates, but also has not been paying his credit cards, and other bills, and his credit score has taken a HIT.

I don't know why he accepted a rate that high, but that is beside the point. He has come to me for advise and I really don't know what to tell him.

He says the bank calls him everyday but he has not answered or returned their calls in over 3 months.

He has the property rented at $1600 a month, but hasn't paid the taxes on the property since he bought it. He owes for 06 and 07 about $11,000.

He has asked should he let it go to foreclosure?
Can he try to renegotiate the interest rate?
He wanted to do a short sale but the property is worth about $265 K in todays market so I don't think the bank will go for it.

I don't know what to tell the guy and since he is a friend and a customer I want to help him out if I can.

Does anyone have any suggestions or experience on a situation like this?