What the Mastons need now is a way to trim their overall debt and help in deciding whether to keep the Vegas property.
"It was a bad decision, but we're ready to see what we can do about it," said Esther, a compliance officer with the state Department of Insurance.
The couple pay $51,600 a year, nearly half of their combined income of $110,000, for mortgages on the Las Vegas property and their home in Walnut. There's nothing left over to add to the $900 they've saved thus far for each of their 6-year-old children.
Aside from $578,000 they owe on their home, the couple also have $8,000 in credit card debt, and Esther is still paying off a $15,000 student loan. They do not owe anything on their cars.
But to Stark, their worst problems are two loans totaling $328,000 on the Las Vegas house. The first, at $253,000, is more than the current estimated value of the home, and in a bankruptcy or foreclosure, it would leave nothing to the second mortgage lender -- except $75,000 in worthless paper.
Whether the couple continue to support that debt is the sort of unknown banks are struggling to define.
Stark and Robert Gallaway, a tax attorney in Ventura, advised the couple to get out of the Las Vegas property if they can. It is held in Michael's name, and his good credit is especially at risk.
Stark and Gallaway said the Mastons and their partners could:
* Try to persuade their lenders to approve a short sale of the property. In a short sale, the lenders would have to agree that the group could sell the Vegas home for less than the amount owed. The incentive is that the lenders' loss would be smaller than if they foreclosed on the property and resold it. In a short sale, Michael's credit score would drop substantially.
* Stop paying both mortgages and allow the home to go into foreclosure. The holder of the first mortgage would probably assume ownership of the house to sell it. Michael's credit would take a more severe hit in a foreclosure than in a short sale.
As with a short sale, the holder of the second could pursue him and his partners for what is now an estimated $75,000 loss.
* Try to work with both lenders to renegotiate the terms of both loans to lower their monthly payments. In particular, they need to change the terms of the first, which now is scheduled to increase from 7% to as much as 13% by 2011.
