Underwater Mortgage Options

[Dustin Bowman]

I am in a bit of a pickle, seeking advice. I purchased a duplex (Austin, TX) at peak market prices in 2022 for $720k. Of course, values have dropped dramatically, and additionally, extreme foundation problems have occurred. The property had foundation work done just prior to the sale but continued having problems, even after I hired a second contractor to correct. Currently, the house looks like a warzone, with huge horizontal cracks, buckling, and crumbling drywall everywhere. Both tenants just moved out.

I just got a bid to correct the foundation the right way by the most reputable company I could find (full underpinning, 60+ piers) ~$65k, plus costs of repairing drywall, paint, vacancy, and new flooring. Probably approaching $100k in total.

My options seem to be sell and pay an additional ~70k out of pocket to the lender (underwater amount) or make the repairs and hope the problem is corrected once and for all. I am very nervous that the foundation is hopeless and I will be back at square one, burning another $100k. I would love to simply walk away but TX is a recourse state for deficiency judgements.

Buying was a blunder and this has been an expensive lesson. I have plenty of capital to go any route, just trying to figure out the best path.

[Andrew Kubik]

If you're locked in at a low interest rate, it might be worth keeping. You'll get pretty good depreciation when it comes time to do the taxes. I expect inflation to remain sticky, so eventually you'll be above water. If the interest rate is on the higher end, then I would cut my losses and sell. Obviously, there are many factors. This is just one thing to consider.