The stock market has enjoyed a small bounce the last couple of days, but the real estate market will take a little longer to recover. A lot of people have seen the value of their homes drop by 30-40% over the last couple of years, and with job layoffs at their highest in decades many are looking for advice on what to do with a mortgage payment they can no longer make.
Before you throw up your hands and simply walk away, there are some things you can try. After all, you did agree to the terms of the contract, so legally and morally you owe the money and the bank deserves to get paid.
Try a short sale
If you are forced to sell your home because you can no longer make payments due to a loss of job, you are probably finding that this is not a sellers market. The number of people looking to purchase right now is pretty small and there is a lot of supply so buyers can be pretty picky. Since you are almost guaranteed to be ‘under water’ with your mortgage, you will likely be looking to try a short sale.
A short sale is simply your lender agreeing to accept a sale price that is short of the amount you owe on your home. The key to making a short sale work for you is communication with your lender. Do not try to keep them in the dark with what you are planning on doing, because to get the short sale to work, they will have to approve the sale price. If you have a second mortgage, that lender will also need to be part of the discussion.
Impact to your Credit
A short sale will very likely impact your credit score, but based on the fact that you are trying to get out of a bad situation you may already be experiencing some credit problems. Do not let the fear of ‘trashing’ your credit keep you in a house you can’t make payments on. A short sale is not nearly as bad on your credit as a foreclosure.
After you sell your house you will probably need to rent for a while until you can clean up your situation. Don’t get into a big hurry to get back into a house. Take your time, get out of debt, save up money for a down payment and then start looking for your next house. During that time you will have re-established your credit and will be ready to get back into the game.
In the meantime, there are a lot of banks and credit unions that are creating new programs to help those that got burned in the housing crisis.
Aaron Bresko, the vice president of lending for BECU, another large credit union based in Washington State, is putting together a panel called “How to Lend to the Newly Credit Impaired” for a conference later this year.
“Good people have bad things happen to them, so how do you find those people and reach out to them?” he said. “As the year progresses, it’s going to be an emerging market.”
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Foreclosure threatens even more people, Greg. In and around Sarasota, Florida, I work the “front lines” trying to help homeowners avoid foreclosure.
No doubt, people are scared, confused & don’t know what to do – obviously, many desperately want to save their homes.
However, homeowners still are losing their jobs. Property values continue sliding. Shadow inventory continues piling up, more distressed than ever before…especially in Florida with intense heat and humidity and no AC in most cases.
Anyone facing foreclosure must get to triage:
1). Find a proven (foreclosure prevention) real estate agent (not just someone with a certificate calling him/herself a Certified Distressed Property Expert (aka “CDPE”).
2). Experience foreclosure defense real estate attorney – not all attorneys are experienced in foreclosure defense.
3. Experienced tax professional.
In what are RECOURSE states (Florida, for instance) where short sale or foreclosure can trigger deficiency judgment and debt collectors for up to 20 years (in Florida that is), a homeowner must consider potential consequences.
It’s NOT just deciding short sale over foreclosure. Really, that’s not an option…rather, foreclosure should not be an option.
Credit is not the real reason for pursuing short sale with full payoff & satisfaction. The REAL reason to pursue short sale is for your attorney to wipe out deficiency judgment. You NOT want to lose your home AND face rabid debt collectors for up to 20 years when you’re trying to rebuild your financial life and block the horrible experience of losing a home.
BTW, I am not just another realtor who (thinks) he knows what it’s like to face foreclosure. Rather, I *AM* a person who faced foreclosure on 2 (yeah, not just one) investment properties. Believe me, I KNOW the fear, confusion, anger, desperation. I also know that I wanted to stick my head in the sand.
Clearly, that does nothing productive. I short sold the two most challenging short sales I’ve ever worked – over 20 months of fighting Countrywide/Bank of America and lost files, inflated valuations…you name it.
Something else I want people to know is beware the deed-in-lieu-of-foreclosure that your bank might offer you to walk away. Your bank might even offer you some money. Absolutely get your attorney to review carefully the paperwork before you sign anything. Some homeowners are duped into thinking they can walk away.
Hope this helps,
Mike
Sarasota (FL) Realtor
Mike recently posted..Sarasota Foreclosures “CAUSE” John’s 3 Home-Buying Mistakes!
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