Last weekend I met with a woman who was trying to decide what to do with a Long Beach home. Her uncle just passed away and as the trustee and executor, it’s her job to take care of the estate. Unfortunately, the primary asset is a home with no equity.
The mortgage is current right now, and we discussed her options. She wondered whether she should attempt a short sale of the Long Beach home or simply walk away from the mortgage. What about other options?
Certainly, the woman I met with this weekend is not alone. As the current housing market drags on, many homeowners find themselves in this position. They want to sell or move, but they don’t have equity. Nationally, almost 11 million homes are now underwater, according to financial information provider CoreLogic. About 3.5 million homeowners are behind on their payments and about 1.5 homes are in the foreclosure process, according to RealtyTrac. The New York Federal Reserve estimates that 3.6 million foreclosures will take place over the next couple years.
Ultimately for the woman I met with last weekend, walking away from her Long Beach home (sometimes known as “strategic default”) probably does make the most sense. She came to that decision after we’d discussed all the options and considered her circumstances. But for other homeowners, a short sale or bankruptcy make more sense. Factors to consider are your credit, your equity position, your other debts, whether you are current or delinquent on the mortgage, and what your future plans are.
Many owners feel a moral obligation to continue paying their mortgage and I’ve met with homeowners who have drained their financial resources to continue doing so. I met a couple last year who had maxed out their credit cards and taken out personal loans just so they could continue paying their mortgage. Finally, when they had exhausted every resource and couldn’t even keep the utilities on, they decided to ask for help.
Asking for help can take on several forms. www.MakingHomeAffordable.gov is a great government resource on loan modification programs, home affordable refinancing programs and other alternatives. We are happy to help homeowners explore options and we offer free E-books on Fighting Foreclosure and Real Estate Short Sales. We also recommend consulting an attorney or accountant as well.
For some Long Beach homeowners, doing a short sale can be preferable to simply walking away. The benefits can include less impact to credit score and a shorter time period before lenders will again extend credit. We helped one couple with two Long Beach short sales about a year ago and were surpsied to hear that their credit scores actually went UP after the short sales, perhaps because the debt was no longer appearing and they sold both homes while remaining current on their mortgages.
Other options to foreclosure or short sale include bankruptcy or deed in lieu of foreclosure.
If you have negative equity in your Long Beach home or are having trouble paying the mortgage, please give us a call. We’d be happy to help you explore your options. We’ve worked with lots of homeowners in your situation. I have gone through training to become a Pre-Foreclosure Specialist (PSC) and Certified Distressed Property Expert (CDPE) as well as Certified HAFA Listing Agent Specialist (CHLAS).
By participating in a HAFA short sale, homeowners become eligible for $3,000 in relocation assistance.
One thing to keep in mind is that time is of the essence. When a lender forecloses on a home or approves a short sale, their loss becomes your “gain” and is considered income. The Mortgage Debt Relief Act of 2007 provided tax relief for many homeowners, but unless it is extended those protections are good only through the end of the year. In the world of short sales and foreclosures, that isn’t really very much time.