Q: I purchased about four acres of raw land in Georgia in 2000. The land is in a gated development that I thought I’d retire to. I still owe approximately $18,000 on the land.
I have been trying to sell it for about five years with no offers on it at all. Zip. Nada. I do not want the land any longer. The property taxes are high and my annual cost is almost $4,000, including mortgage payments. I have filed challenges to my property tax assessments several times seeking to lower the taxes, to no avail.
I can no longer afford this land. I have major health issues and am trying to scale back. My seven-year adjustable-rate mortgage (ARM) is coming due on the land. I don’t qualify for refinancing my house, so I’m sure I won’t be able to get a new loan on the land if I have to provide tax records due to depreciation losses in my business.
Is foreclosure on the land my only option? How can I not lose all the money I’ve paid the last 12 years? I am 57, single, with no children. Thanks for your help. I love your radio broadcast.
A: You’re clearly in a tough spot and given your health and financial situation, retirement must seem like a million miles away. You’ve raised several important questions in your email, and we’ll try to provide some insight where we can.
Let’s start with your property taxes. While they feel expensive to you, vacant land is taxed significantly lower than land that has a home built on it. You might want to try to work with an expert who contests real estate taxes to see whether you can get any relief there, or if you are already paying the correct amount for the property.
You also didn’t mention what you are doing to try to sell the land. Did you hire a real estate broker, determine whether other land in the development is selling or find out whether it is realistic to sell the property in that development?
If there is a glut of lots for sale in your development, you might only be able to sell the land if you lower your asking price. That may require you to sell for less than you paid for the property.
Now let’s talk about refinancing. It is very difficult, if not impossible to refinance a vacant lot today. But if you refinanced seven years ago, your interest rate is probably much higher than interest rates today. When your seven-year ARM adjusts to a one-year ARM, you might well see a decline in your monthly mortgage payments.
Check your loan documents and see what your interest rate is pegged to when it adjusts. Your note and your mortgage (or trust deed) should disclose when your interest rate will adjust and the terms of the adjustment.
If your loan is pegged to LIBOR (the London Inter Bank Offer Rate) that rate is a bit over one percent as we write this. But your rate wouldn’t be just that, your loan terms would probably state that your rate would be tied to LIBOR plus a margin of 2.5 percent to 3 percent. That would mean that your new interest rate would be around 3.5 percent to 4 percent. That lower rate might be quite a bit less than what you currently pay on your loan.
If you get your monthly mortgage payment down and you are able to get a reduction on the real estate taxes for your lot, you might have a better chance at keeping the lot for future use. But if you have a seven-year balloon mortgage, and the loan balance is due in its entirety at the end of the current seven-year term, then you could be in trouble if you can’t refinance. Then, selling becomes the best option.
But if you truly want to sell your lot, then you have to get aggressive with your pricing and how you’re marketing the lot for sale. Work with a good real estate agent in your area who can help you understand the true value of your property, and what you will have to do to get it sold, then see if you still want to sell the lot now or in the future.
If lots in the development are selling for less than what you owe on the loan, you can still try to sell it, but you may have to come to closing with money to pay off your lender. That is to say, if you sell the lot for $17,000 and owe the lender $18,000, you will have to pay the lender the difference to close the deal in addition to any other closing costs of the sale.
Given your age and what we’re assuming is a pretty good credit history, you might want to put whatever fund you have into the sale to preserve your credit history and credit score.
If you can’t afford to make up the difference, you can try to get the lender to agree to a short sale of the property. In a short sale, the lender agrees to accept less than what it is owed on your loan. A short sale will hurt your credit history, but less so than a deed-in-lieu of foreclosure or a straight out foreclosure.
None of these options are great, and you have to face the fact that you will lose money on this property. But given the state of your health and finances, getting rid of the lot is in your best interests.