Randy Johnson, president of Independence Mortgage Co. in Newport Beach, author of “How to Save Thousands of Dollars on Your Home Mortgage” and a mortgage broker since 1983, answers questions…
Q. I have a vacation condo on the Big Island of Hawaii for which I put 30 percent down. It is under water with little chance of a sale or short sale. My mortgage is now $250,000, and it costs me about $15,000 to $20,000 a year as I rent it out. But the rental market is bad, also. Initially I bought it with the idea of retiring in Hawaii. I retired here in California instead as my grandkids are here. I want to give the condo back to the bank but their only option is a short sale. That won’t work because I have other assets and won’t qualify and it won’t sell anyway. While I can afford the payments now, it is depleting my retirement assets and there is no end in sight. I am afraid of a deficiency judgment in foreclosure. I called several lawyers in Hawaii and they all work for the banks and not the borrowers.
A. I am not that familiar with Hawaii property, but I do know that vacation property price recovery generally lags behind primary residences in slow economic times. Thus the potential for a rebound in value is more limited. There is no sense using up money you may need badly in the future keeping this ship afloat. You may not be getting any return.
You don’t say whether you own here or are renting, but give this plan some thought: move to Hawaii now and have these payments go toward your home, a good cause. With the money you save, fly the grandkids over for a holiday a couple of times per year.
Q. My wife and I bought a townhouse for $530,000 in 2005 close to the beach in a gated Huntington Beach community. It is now worth about $360,000. We have refinanced twice and still owe about $530,000 on a 4.25 percent, 30-year loan. We want to retire and move out of the area in eight years. Even though we can make the payments, we feel we’ll never recoup the loss. Should we short sale, default, or keep making the payments?
A. This is just my guess, OK? We are still in tough times with not much hope in the near term. I think it will take years before you can regain your equity. A short sale hurts your credit for a few years, but at least you can take the money that is going into a black hole and put it in the bank for your retirement home when you are ready to make that move.
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