Arizona Rookie

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Greetings from AZ! I recently found this forum and was impressed by the knowledge of the members. I am hoping the things I learn here can help me dig out of a bad situation that I'm in. I only wish I had known of this forum prior to making my first deal.

I apologize for the long introduction, but I feel it is important to give a little background on my situation, and hopefully others can avoid my mistakes. I'm a REI novice. I made a huge mistake in my first REI transaction and am seeking advice on how to make the best of my situation. I have always been fiscally cautious and responsible, but the promise of big money during the housing bubble two years ago clouded my judgement. After all, my personal house had nearly doubled in value since purchasing it a year prior and I was feeling pretty fat about my new-found wealth. A co-worker of mine had been doing REI for a few years and had done very well. He opened my eyes to the opportunities, and I convinced myself through motivational books that it was time to stop watching and start doing. Unfortunately, I was introduced to a shady real estate agent who "specialized" in "helping" people to get started in RE investing. He sold me on his turn-key approach and convinced me that I could afford properties using financing set-up through his girlfriend mortgage broker. At first, I didn't feel comfortable and couldn't logically see how I could manage the cashflow. However, I was convinced that through creative financing and tax advantages, I could still have positive cashflow based on average rents in the area. In addition, the part of town we were buying in was up-and-coming and was virtually a sure thing for huge appreciation over the next several years. In fact, his philosophy was that every single house on the market was a good deal and a money maker…which is apparently why he didn't look very hard to find us "a deal". He also recommended pulling all the equity out of our home (using his girlfriend mortgage broker) and invest it as down payments on 3 properties. Luckily, we only did one property. I nearly backed out of the deal when reviewing the loan documents and found things to be different than what I had been told. However, I was told that we would lose our 10% down payment on the house if we backed out. When we closed, he and his girlfriend were conveniently in Mexico. This was the first time in my life I decided to go against my intuition and take a risk. I decided to put my trust in someone else for once. After all, he seemed like a good guy, had a lot of expertise, and was doing very well. (I know, I'm a sucker…but I like to believe in the best of people…oh how my outlook has changed!) Although disgusted with the situation, I still thought I could make things work out and chalked it up as lesson learned.

To make matters worse, I bought at the peak of the Phoenix housing bubble. In fact, our agent convinced us to make a higher offer than the property was listed to guarantee that we wouldn't get out-bid by another buyer. Now I’m stuck with a property with huge negative equity, huge interest only mortgage payments, a highly negative cashflow, and no silver lining in sight on the local housing market. I am living paycheck to paycheck and have nearly exhausted my cash savings. I take pride in having excellent credit, and being the type of person who plays by the rules. One of my biggest fears is that I will get into a foreclosure situation at some point with the rental house and creditors will come after the remaining equity I have in my personal home…or worse, lose my personal home. I have a wife and two young kids that I need to support and protect.

I am trying to take responsibility for my mistakes and make the best of my situation, learn from my mistakes, cut my losses, and move on. However, it seems nearly impossible to sell at this time without eating up the rest of the equity in my personal house to pay for the difference between what I owe on the rental and what I can sell it for. I would appreciate any advice or strategies to get out of this situation.

Also, more importantly, does anyone have any advice on how I can protect my personal assets from creditors in the event that my situation gets worse? I want to be proactive to protect my family. If I end up in a foreclosure or short sale, can creditors take or put a lien on my personal home? Would creation of a trust protect us? I would greatly appreciate the expert advice from this forum. Thank you.