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| Short Sale: The Upside Down Mortgage Exit Strategy |
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| Written by Karen Smyke |
| Thursday, 18 December 2008 09:43 |
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It's that time of the month again, and we pull out the checkbook to cut that monthly mortgage payment and flush some more of our hard earned cash down that bottomless void known as the "Upside-Down Mortgage." What can you do to help the situation? What are the viable options? Everyday we're inundated with TV commercials from banks, savings & loans, and attorneys and mortgage companies. Who's going to really help? Who's going to break my wallet? This is the exact situation I'm facing RIGHT NOW. I haven't missed any payments, but I'm getting tired and my savings is circling the drain. I'm not going to be able to do this balancing act for much longer. I've stuck with my commitments until now, but I need help. I've got to find a way to fix this mess, and look at all of my options, and cut a deal with the banks. I've never been in this position before, and sometimes I think the banks would be more willing to deal, if I HAD missed a few payments! My personal "end of the rope" was when my rental homes had each reached over $100,000 in depreciated loss. I figured that even if I kept making the payments, and the market rebounded, I'd be a slave for many years. In other words, if the market suddenly started appreciating again at the same rate or faster than "the good old days", let's say 15% a year, it would still take me 6.6 years to just regain the loss. No appreciation, no recovery of expenses, insurance, tenant hassles, taxes, etc. Just pumping most of my paycheck down a black hole. At one point, it just doesn't make sense anymore. The actual situation is probably worse because in this economy, the days of 15% appreciation are long gone! So what do I do? This is the question I was facing when I first decided I was in trouble. Maybe your in the same position. I owe more on the house than it is NOW worth. The quintessential upside down loan. So I looked at everything from lawyers to banks to real estate agents. Here are the options I found out there. Some of them might be right for you . . . . . 1. Maintain that balancing act! (Those of us that can!) For some of us, this will be a personal choice, and for the rest, it won't be an option. All of us that are caught in upside down mortgages and can afford to keep up the payments need to ask yourselves if your willing to gut it out for the next (x) number of years with little to no equity gain. Who knows, the market may recover soon, but it's not likely. You can't time the market, not even the banks can. 2. Loan Modification is another option. This is a fairly painless process where you contact your bank and they send you a hardship package. This is a big stack of forms where you try to look as poor as possible, documenting your income and expenses. You simply send the package in and wait . . . . . and wait. . . . . .and wait. Finally they'll give you a reply with a possibly lowered interest rate and terms. 3. Short Sale: This is a pre-foreclosure sale. Your late on a few payments, and the bank takes a serious look at you and begins the foreclosure proceedings. You find a realtor to represent you and present the hardship package. The realtor prices the home with an aggressive discount and finds a buyer. She presents the offer to the bank, and the bank usually accepts the deal, which is a win-win for everyone. The bank is always interested in short sale instead of foreclosure as it saves them tens of thousands of dollars in hassle and legal fees, and allow both parties to move on to new business. You should remember that there are still negative ramifications for short sales, even if less damaging than those associated with foreclosures or bankruptcy. However, short sales do carry less negative effects than foreclosures. Short sale sellers are widely seen as less risky than foreclosed sellers. 3. Short Sale: You could call this a pre-foreclosure sale. Your late on a few payments, and the bank takes a serious look at you and threatens foreclosure. You find a realtor to represent you and present the hardship package. The realtor prices the home at a substantial discount and finds a buyer. she presents the offer to the bank, and the bank usually accepts the deal, which is a win-win foreveryone. The bank is always interested in short sale instead of foreclosure as it saves them 10s of thousands of dollars in hassle and legal fees, and allow both parties to move on to new business. You should remember that there are still negative ramifications for short sales, even if less damaging than those associated with foreclosures and/or bankruptcy. However, short sales do carry less negative effects than foreclosures. Credit to short sale sellers are widely preferred over foreclosed sellers. Case in point, Fannie Mae recently adjusted their guidelines to dictate only a two year waiting period for a short sale seller to buy another primary residence, while they extended the waiting period for foreclosures to five years. 4. A Deed in Lieu of Foreclosure is one of the banks least favorite options. This is where you just hand over the deed, and say goodbye to the bank. The lender has to then sell the house to recover it's losses. The bank will subsequently provide the borrower with 2 documents. One document will cancel the debt and relieve the borrower any further debt, and the other one assures they can never come back to you for the money. 5. Foreclosure: This is the final option and if you like to go to court, then this is the option for you. In foreclosure, the lender first sends you a summons to appear or foreclosure complaint. The borrower responds to prevent foreclosure and explains the problems at a hearing. The borrower can this point you can still pay the full amount and get the house back during this redemption period. After the redemption period is over, the lender sells the property a public sale or auction and getting as much as they can (or settle for). Any excess goes to you, the original owner/borrower. If the sale amount is less than the loan amount, and in your case it probably will be, you will still owe the balance to the lender. This amount is determined as a result of deficiency proceedings.So as you can see, as we go down the line, the options get worse and worse! As far as my situation, I have to walk away from at least 3 houses. I'm losing a hell of a lot of money, but I'm getting my life back. About the Author: Follow my story!? Please visit my blog and and see what happens at HouseShortSale.org. You'll learn lots and find resources for your own situation. Kindly provided by LJ-Marketing.dk You are welcome to use this article on your own website, if you include the link just before this text. |
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