Out of Sight Mortgage Payments: What Can You Do?
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?
That's what I had to ask myself, and the professional I talked to. Maybe your in the same boat as me. Maybe your house is worth a lot less than you owe on it. I researched and talked to real estate attorneys, realtors, and CPAs. Here is what I found out, and I hope my story can help you make your own decision.
1. Keep on paying and don't change a thing: The success of this method really depends on the terms of loan you have now. If you can hack it for the long term, it is something to consider. However you realize, you don't know when the market will bounce back. In other words, if your house has lost considerable value, who knows when the value will return to at least the price YOU bought it for, let alone the inflated value of "the good old days." All the experts say, "you can't time the market." I guess its true, especially if they themselves were burned as well.
2. You can contact your bank and ask them to modify your loan. It's not hard at all, you just have to call them and ask for the "loan modification department or loss mitigation." This is a good option if your less that $100,000 under water. They'll send you a packet of papers to fill out. Simply send them back, looking as poor as possible and wait. In a few months, they just may come back with a lower interest rate.
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. He presents the offer to the bank, and the bank usually accepts the deal, which is a preferred position for everyone. 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 credit effects than foreclosures. Short sale sellers are widely seen as less risky than 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. Deed in Lieu of a Foreclosure. This is the second to the last resort for you, and a solution the bank doesn't particularly like. This is an option where you hand over the house and the bank has to sell it to recover their costs. As part of the deal, the bank let's you off the hook for the loan, and promises to never come after you for any outstanding debt. All of this is negotiated by your rep, and it's all settled by contract.
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.
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?
That's what I had to ask myself, and the professional I talked to. Maybe your in the same boat as me. Maybe your house is worth a lot less than you owe on it. I researched and talked to real estate attorneys, realtors, and CPAs. Here is what I found out, and I hope my story can help you make your own decision.
1. Keep on paying and don't change a thing: The success of this method really depends on the terms of loan you have now. If you can hack it for the long term, it is something to consider. However you realize, you don't know when the market will bounce back. In other words, if your house has lost considerable value, who knows when the value will return to at least the price YOU bought it for, let alone the inflated value of "the good old days." All the experts say, "you can't time the market." I guess its true, especially if they themselves were burned as well.
2. You can contact your bank and ask them to modify your loan. It's not hard at all, you just have to call them and ask for the "loan modification department or loss mitigation." This is a good option if your less that $100,000 under water. They'll send you a packet of papers to fill out. Simply send them back, looking as poor as possible and wait. In a few months, they just may come back with a lower interest rate.
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. He presents the offer to the bank, and the bank usually accepts the deal, which is a preferred position for everyone. 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 credit effects than foreclosures. Short sale sellers are widely seen as less risky than 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. Deed in Lieu of a Foreclosure. This is the second to the last resort for you, and a solution the bank doesn't particularly like. This is an option where you hand over the house and the bank has to sell it to recover their costs. As part of the deal, the bank let's you off the hook for the loan, and promises to never come after you for any outstanding debt. All of this is negotiated by your rep, and it's all settled by contract.
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:
Did you like my article? Follow my story and see what happens at HouseShortSale.org. You'll learn lots and find resources for your own situation.
posted by Credit Counseling at
2:06 AM
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