Modification of investment property mortgage?

The latest issue regarding our BK is an interesting one. Updating our situation:

We are preparing to file a chapter 13 bk - have fully retained our attorney.
We have 3 homes - the one we live in and plan to stay in and 2 rentals.

One investment property with a 15 year interest only loan - value 130k~ and falling - owe 232k - no second mortgage on this one.

Another investment property - value 130~ and falling - owe 109k first and 80k second. This house is the one I am speaking of in this post.

We plan to surrender both properties in our BK - they are both vacant because we noticed the tenants so that they could find other places to live.

Got a call from the second mortgage holder today about a modification - she spoke of "temporary" lowering the interest rate and could "look into" a principal reduction as well. She speaks of something different then the "Obama" plans and wants to get with our attorney and look into modifying the loans on the rental - so we can keep it.

Understanding that we purchased these houses in 2002 and 2003 respectively and that they were purchased to suppliment our retirement she is peaking my interest. These homes were purchased for about 145k each - at the "peak" of the market they appraised for 320k each - if only we had the balls to sell them then - i was worried about short term capital gains and our goal was to keep them long term - sheesh.

Anyway here is the deal. I think it will be a long time before these houses gain value again. I KNOW we are not yet near the bottom of this real estate market yet. If we could PERMANENTLY reduce the principal and modify the loan and get this house to a positive cash flow again it might make sense to keep the investment.

I allready had the rentals out of my mind - was going to surrender - but now i am thinking about maybe discussing this issue with the lenders.

Any thoughts or other experiences ?

Principal reductions are still about as rare as the dodo bird (note, dodo birds are extinct). As the rep pointed out, there is no Obama modification that is applicable to rental properties, any modification of mortgages is a straight-up negotiation.

There is no harm in going down the path to see where it leads, but I wouldn't alter your BK plans based on the "hope" of getting a modification. Most modifications are pointless.

I feel your pain on the rentals. They were supposed to be our retirement plan, so we never really considered selling them while they had equity (even though we were losing money on them).

We stopped paying about 5 months ago, one was foreclosed yesterday and the other one should be foreclosed sometime (August maybe?). We asked about loan modifications and got stone walls. Nada.

Something our lawyer mentioned at the time was that forgiven debt would be considered taxable income, so that was something to consider.