As promised last week, we’re looking at short sales. As we close
2006, we are looking at a housing market that is flat with many
properties highly leveraged (meaning a lot of debt for the amount
of value). So we can expect people who try to sell homes they
bought in the past few years for less than the amount they owe.
As promised last week, we’re looking at short sales. As we close 2006, we are looking at a housing market that is flat with many properties highly leveraged (meaning a lot of debt for the amount of value). So we can expect people who try to sell homes they bought in the past few years for less than the amount they owe.
That’s a bad feeling. Imagine selling your home and then having to come to the escrow office with a hefty check just to get out of the deal. Whoa, doggies. (Or maybe that’s woe doggies.)
Sometimes people don’t have the money for that hefty check. And in fact, they may not have been making mortgage payments for a few months. The bank has the option of either foreclosing upon the property, or working with the owner to minimize the loss. Why would the bank forgive part of the money due them? Banks and mortgage lenders are not in business to amass real estate holdings. They do not want to own your home. Ideally, you would continue to hold the property and keep making payments, and thus assuring the lender of a steady cash stream. However, if for any reason you cannot pay, they would often rather help you to get out of the deal than go through the cost of foreclosure, selling the foreclosed property, etc. etc. It’s not what they’re in the business to do.
Quite frankly, the market in the last 10 years has precluded the need for foreclosure for the most part. When prices were going up in double-digit growth each year and houses were selling in a week it was pretty hard to get upside down (owing more than it’s worth) in a house. If things got tough, you could sell and usually realize a tidy profit.
As a result, the foreclosure departments (whoops! I meant to say “Default Alternative” or “Loss Mitigation” departments) of most lending institutions are non-existing or, at best, under-staffed. The last time there was a rash of foreclosures was in the early 1990s.
Hmmmm. Is there still anyone around who knows how to handle the process?
Yes, there are. And if you or someone you love is overextended, please counsel them to call their lender immediately. As we discussed last week, you’re better off talking to the bank sooner rather than later. Though each lending institution has a different policy, you might be surprised at how willing they are to work with you.
So here you are in a bad situation. You lost your job, broke both your legs, and your significant other ran off to Mexico with your best friend and your checkbook. Call your lender. Explain your situation. Ask for a forbearance agreement whereby for a period of time your mortgage payment will be suspended or reduced.
Put your house on the market with a trusted local Realtor. When you get an offer, take it back to the lender and let them know your proceeds will be less than the total amount you owe on the home, and you have no resources to pay the difference. They may be willing to take that amount and call it all even-steven. You get out of the house without total financial ruin, and life goes on.
So the detail of the story is exaggerated. Every person has a story or two, and we all face difficulties at one time or another. The point is you need to deal with the situation and not ignore it until it blows up in your face.
The situation gets stickier when you have a second mortgage or other liens against the property as well, and is beyond the scope of this column. However, once again you’re trusty local Realtor can help you navigate the choppy waters. Don’t be afraid to call him or her today and discuss candidly any concerns you might have.
Most of the loans which are in delinquency at this time are sub-prime loans. A sub-prime loan is one given to a person with a spotty credit history. In order to make up for the higher risk of the loan, a higher interest rate is charged. It doesn’t take a brain scientist or rocket surgeon to figure out if you’ve had problems managing money in the past and it costs you more money to live in your house than it does your neighbor, you’re probably going to be the one not sitting in the chair when the music ends. Especially if mortgage rates go up.
Big concentrations of sub-prime loans exist in California. The loans are generally about 3 percent higher than the loans of the most credit-worthy borrower. They often are associated with 100 percent financing and adjustable rates. The good thing about them is that they allowed many people to become homeowners. Many of them acquired wealth through equity growth previously unavailable to them. The bad thing about sub-prime loans is some homeowners will be unable to maintain the cost of both their home and their chosen lifestyle.
This is a big topic…I’ve tried to give you an overview. For more information, call your Realtor. And be kind to your Realtor!
Happy New Year to All!
