Please help....pay rental property mortgage or pay credit cards????

[Anonymous]

I would really appreciate some advice.

With my fiance laid off and my bonuses taken away, we are now faced with a financial nightmare.  We've used up our savings and have resorted to credit cards.  The home we live in is in my fiance's name and remains current - no delinquencies. 

I have a rental property that is paid up to date - never a delinquency - with a 1st $240k (6.65%) and a 2nd $60k (12.5%).  Both mortgages total $2300/mth and the renters pay $1850/mth. I just got notice that the renters will be moving out in 60 days, so I need to either sell it or try renting it out again.  I contacted my real estate agent and she informed me she thinks we could get about $280k for the house.  

I have about $80k in credit card debt (no delinquencies) - 3 citicards and a Discover card. 

We have reached a point were I can't pay everything, so I have to make a decision what should be paid. 

Should I pay the mortgages and NOT pay the 3 Citibank credit cards?  Or should I pay the credit cards and NOT pay the mortgages?

I've heard pros and cons for both sides:

- don't pay the mortgages and hope the bank agrees to a Short Sale.  This will reflect better on your credit report.  One large negative hit is better than 3 negative hits.

- don't pay the credit cards and get to a point were you can negotiate a "deal" with Citibank. Hope for "paid as agreed - not full balance"

I contacted a bankruptcy lawyer and they told me I make too much money to file for a Chp 7.  My only choice would be a 13.

As of today my credit scores are:

-  TransUnion  684

-  Experian  686

-  Equifax 674

We have a 10 month old baby, with another baby on the way.  I have never been in debt or delinquent before and I am stressed beyond belief.

I have no clue what to do.

Any advice would be greatly appreciated!

[GregB]

I can think of two items that you might want to consider.

Even if the rental house could be sold for $280K, you will have around 8% costs and will net enough to pay off the first plus a bit. Much of a discount from $280K and you might just squeek paying off the first. That almost certainly means that the second holder could damage your credit. Is it someone that reports to the CRA?

Any negatives on the mortgage or any lates on the CC will impact your scores and will likely result in AA from the other CC. Lowered limits, increased rates, etc. It seems likely that any CC negatives could cause big problems with all the CC but the mortgages are fixed.

If the CC are in your name and so is the rental house, consider your fiance's house being sold or foreclosed upon to keep all payments current on your CC and house.

Since you are not married, your scores are separate. It seems one of you will have to sell "their" house or have their credit destroyed and probably lose the house.

IF it is not practical to sell your fiance's house, then not paying your rental house mortgages is likely to take your CC and make a disaster. With negative equity (larger negative after sales cost) there is limited choice.

I highly suggest you get input from several other people on this forum and talk more with a bankruptcy attorney.

Message Edited by GregB on 06-02-2009 03:23 PM