I want to stop paying mortgage on my upside-down investment property. What is going to happen?

So, let's see, you bought an investment condo hoping to cash in on the fast increase in real estate prices. You went to a bank, got a loan to buy the property and purchased it. Now your investment has gone bad and you don't want to pay anymore. I must have missed that clause at my mortgage signing, but when I signed my mortgage papers I agreed to pay the money back with interest over a certain time period. I didn't agree to pay only if my investment didn't lose any value or if it went up in value, I agreed to pay.

Let me ask another question. When you signed the agreement was the bank your partner? No? They just agreed to lend the money to you. They didn't agree to take on the risk that you did and tell you that if the investment lost money that they'd share in the loss did they? Hey - If the condo value had gone up by 100k would you be looking to share your profit with the bank? No? Didn't think so.

Your and people like you are going to cause more banks to fail and extend the recession that we are currently experiencing. You shouldn't be allowed to walk away from your investment and give the bank a 40-50% loss on the loan because the property value went down. THIS IS AN INVESTMENT PROPERTY AND YOU CAN AFFORD THE LOAN for goodness sake!

Many protections in real estate loans are afforded people who live there and not investors. Investors are generally more on the hook for the balances.

Here's what's going to happen:

Your credit score will go into the crapper as you stop paying the mortgage and wait for the bank to foreclose on it. This will cause you a lot of grief, including higher insurance rates, higher interest rates on credit cards and a general tightening up of any credit you may already have.

The lender will foreclose. They will incur costs that they will add to the loan balance. These costs come from lawyers and are high. They will sell the condo. At any cost to them. They need it off of their books. They won't get market value, but somewhat less. You now owe the balance between what was owed (with fees and other costs) and what they sold it for. I wouldn't be surprised if you owed almost $100,000 after all that happens.

$100,000 is a lot of money and they are going to come after you to the best of their ability. If the loan is a recourse loan (many investment loans are) then they will get a judgement against you and collect in any way possible (liens on other property, wage garnishment, etc.). If nothing else they will issue you a 1099 which means this money counts as income for tax purposes. Any federal forgiveness on this type of income is limited to owner-occupied properties. Now you will have a minimum of $30,000 of tax liability to Uncle Sam and depending on what state you live in more to your state government.

Now your credit is trashed and people are coming after you for a lot of money...

By the way, how was your condo investment any different than someone who uses a margin account to buy stocks?

good luck! - you are going to need it

the foreclosure is just the beginning. this will be on your credit reports for the next 7-10 years. good luck getting another mortgage during this period. also, the bank will sell the condo and will come after you for the deficiency. if they get a judgment in court, they can lien your other property, attach to your bank accounts, or garnish your wages. the judgment will also appear on your credit reports, further nuking your score. lastly, in some states if this is not your primary residence, if they don't go after you in court for the deficiency, they can send you a 1099 for that amount and then you get hit with the capital gains tax on it.

getting the picture here? if you can pay, you would be far better off simply holding onto the property for thforeseeablele future. the market will rebound eventually. P.S. not all mortgage loans are "non-recourse". whether they are or not depends on the language of your lending agreement.

Sorry to hear that you are one of the many caught up in this financial mess.

I think you should think long and hard about walking away from the commitment you agreed to. Since it is an investment property, you will not be afforded any of the protections that might be available to home owners who live in their properties.

As noted by another poster, the foreclosure will follow you for a long time, and you will have legal fees on top of whatever judgment is determined.

Since you say that you can afford to live up to your responsibilities, you should do that. You can at least write off the loss on your taxes to off-set your other tax liabilities.

Although times are tough, it doesn't mean that we have to act in ways that are ethically and morally wrong.

Good luck.

You should consult a tax expert, your main issue lies in the fact it’s an investment property, therefore you will be liable for the difference between the foreclosed sale price and the loan amount

The lender can seek to personally seize any assets you have or forgive the debt which then leads to a 1099 issued to you on the difference payable to IRS as income received by you

Hopefully the note is non-recourse but there are many loans in the US which are recourse esp. those written during the housing bubble

The worst that happens is what wizjp says.

The best that happens is you get a huge ding on your credit rating, and nothing more because the lender determines it is too expensive to go to court for a deficiency judgment, in which case you will owe nothing more. But, that won't keep the lender from passing off the rights to the balance to a collection agency, in which case you can expect to receive endless phone calls from creepy bill collectors.

The bank will take the asset, and sell it. They will file a judget against you and the foreclosure and amount due will be on your credit report. Mortgages in the US are non-recourse, so they can not go after other assets or garnish your wages.

It is possible that the housing market will recover at some point.

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Ruin your credit, sue for the deficency balance, liens and judgments, in some states garnishments.

You'll owe the difference between the actual value the property sold for and what you owe on it plus all fees and legal actions.