Stuck With Underwater Mortgage on Worthless Real Estate Property

Q: My daughter purchased a condominium in 2007 that had been converted from a rental apartment.

Due to the climate of the real estate market the past few years, the condo complex has been through several different management and investment group companies, the last of which is determined to change the complex back to apartment rentals. This has caused the values of those units that are condos to plummet.

My daughter is now stuck with an $80,000 dollar mortgage attached to a condo property with little or no value.

Do you think that she has any recourse legally? She has been advised by several realtors to walk away, however it is my belief that her lender will come back at her with a judgment. Your expert advice is greatly appreciated.

A: Instead of asking real estate agents for a legal opinion, you and your daughter should immediately find a good real estate attorney to help her review the situation and her documents and see if there is any good that can come out of it.

You can find a good real estate attorney by calling your local Bar Association and asking for the head of the real estate committee. While on the phone with the chair of the committee, describe your problem and ask for a referral to a real estate attorney who can help you and your daughter evaluate your options.

On the face of it, I’d agree that your daughter’s investment is likely to be lost or severely diminished. If the property hasn’t sold enough units, and your daughter is a sole owner in a sea of renters, the value of her property will decline. Most buyer’s won’t even consider or think of her unit as a place to live as they will think of the building as a rental building not as an owner occupied building, and they’ll have trouble financing it. Even if she kept the unit and rented it out, she might have difficulty selling it to a real estate investor.

But if the developer wants to take back the property and turn it into a rental, your daughter (with some excellent legal counsel), might be able to strike a deal that at least gets her out whole – or nearly whole. While she wouldn’t make any money on the deal, at least she wouldn’t have to worry about selling the unit short and having her lender come after her down the line.

Depending on where you live, you might find that attorneys in your area have some experience on this issue and have dealt with other similarly situated owners.

There may be case law in your state or circumstances under state law that may require the developer to take back the condominium unit and repay your daughter for her investment.

There has been some litigation around the country that mirrors what your daughter is going through and some owners have sued developers to force them to take back the units. But for more information and to see whether owners are winning in your area, you’ll need to talk to a real estate attorney or even a litigator in your area that has dealt with this issue.

Good luck, and let me know how it all works out.


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One Response to Stuck With Underwater Mortgage on Worthless Real Estate Property

  1. LOuis Cherniss says:

    There should be nationwide class action suits against the entire mortgage industry. In the first place, the lending industry precipitated the bubble causing the real estate crisis by shoddy lending practices, when virtually anyone with a heartbeat could find a mortgage with zero equity.

    Secondly, the mortgage industry exacerbated the eventual real estate mess by flooding the market with foreclosure sales, causing a catastrophic reduction in real estate values.

    We have a home we purchased in 2005 with 20% down upon which we’ve made faithful payments, never missing a payment or being late until two months ago when we made the tough decision to let it go back to the bank. It’s current value is about fifty percent of what we bought it for, and our mortgage is over sixty thousand dollars under water……we’ve raided our retirement savings and other cash since we retired in 2006 to maintain both our mortgage and the property which has been on the market since February of 2006 (we were forced to move due to my failing health, which precipitated retirement and a substantial decrease in our income).

    We have no choice now but to give it back to the bank or risk a permanent financial disaster by holding on to it, continuing to hope for a market recovery.

    In the meantime the financial industry continues to earn record profits………….