Question: Does anyone have experience with walking away from VA loan? I have 3 houses, living in one and renting 2 in Arizona. One rented house is up side down, worth only 50% of original purchasing price with a VA loan. For the first time thinking of short sale then foreclosure if i fail to sustain the payment in 6 months. In AZ, VA is exempt from the Anti-deficient law. How do I get around this? Please help. Thanks.
Answer: – I think you’re going to find it’s the same no matter what kind of loan you have. You have an obligation to pay a specific amount each month. If you cannot pay, the mortgagor has the right to initiate the foreclosure process to try can get the money back that was borrowed.
It’s not a good idea to just walk away from any type of loan without trying a few things first. Even though it might take a little effort, it’s worth it in the long run to try and get things settled. Although the property is upside down, you do have some options. You could try to do a settlement with the bank. This generally works well with large 2nd mortgages. It’s much tougher with a 1st because they are in a good position. However, with the loan being so far upside down, it’s always worth asking.
The other option is a short sale. Try to get the property sold ahead of time to another investor / landlord. You will be taxed on the amount of money that was written off, but a good accountant can eliminate that 1099 income. These options are much better than a foreclosure on your record and although the anti-deficiency law is true, it typically does not apply to 2nd mortgages.