Empty Lot Money Pit

[James Floyd]

I only posting this for general thoughts and hope there is something I haven't thought of. I am not asking for legal advice just opinions if you were me. Any feedback would be appreciated. 

Ok here's my little situation. In 2007 purchased an 7.7 acre "estate lot" in the new Jacksonville Ranch Club equestrian community. Like most people I didn't realize the real estate bubble would pop and thought it would be a great investment. I financed the lot with a conventional loan thinking I would be easy to resell. 

Paid 175,000.00   Its on a 10 year loan at 6.5 interest.   I still owe 110,000 today with a 1,700 monthly payment. 

A lot of investors purchased land there and are in the same situation. A few families have build homes but its mostly a nicely planned out ghost community. 

I had it for sale since I purchased it. It is only worth maybe 40k. I could keep paying and hope for the best. I could reach out to builders and try and negotiate a deal for a spec home (risky). I have offered owner financing but that difficult on a lot.

How would a savvy investor turn this sinking ship around?

[David Krulac]

@James Floyd

There are some other options besides short sale and foreclosure.

Two would be either a cram down or mortgage satisfaction.

1.  In a cram down the lender agrees that the value has declined through no fault of your and reduces the principal balance to be more in line with current values.  Say a reducing the mortgage balance from $110,000 to $40,000.  This would not be a short sale or a foreclosure and would be am agreement between you and the lender.  Your arguments to the lender include that this approach is better for THEM than either a short sale or a foreclosure.  

2.  Mortgage satisfaction is not as remote or unthinkable as first glance.  I know several investors who have received mortgage satisfactions from lenders like Wells Fargo and Ocwen, essentially giving them the property free and clear and no negative on their credit report.  The argument here is that you've paid already $65,000 on the property plus taxes and insurance and the property is only worth $40,000.  You need to present this to the lender as a lose lose situation for THEM.  Values have declines and are not rising, few lots are built on, and its a ghost town.  If the lender becomes the owner they are going to have considerable problems, essentially all your problems on top of their situation.

3.  A third option would be a deed in lieu of foreclosure, where you deed the property to the lender voluntarily in exchange for no deficiency judgment against you.  In all three scenarios you need to stress how bad the situation is for them and how much worse it can get for THEM.

In all three cases they will probably want a certified appraisal which you should be more than willing to pay for.

Lets us know how it works out for you.

I do feel your pain.  I recently sold a lot for 60% less than I sold the lot next door in 2008.  I've owned hundreds of tract of land and what you realize but most people don't is that lots were much harder damaged in the Great Depression of 2008 than either houses or apartments!