Terry Henry

What Options May a Person Facing Foreclosure Consider?

The financial crisis has taken a huge toll on American families: among U.S. homeowners with mortgages, a record 7.58% were at least 30 days late on payments in August according to Reuters, the latest available data. So far in 2009 more than 1.5 million properties have received a foreclosure filing or were seized by banks according to RealtyTrac..

If you're facing foreclosure in there are several options for you to consider. In Manhattan, New York City, one needs to consider how the co-op or condo form of ownership and the board of directors, or in the case of a co-op, the proprietary lease, impacts your decision.

As a Certified Distressed Property Expert ® I may be able to help you or someone you know think through what your next best steps are. Here are some options to think about:

Reinstatement


A reinstatement is the simplest solution for a foreclosure, however it is often the most difficult. The homeowner simply requests the total amount owed to the mortgage company to date and pays it. This solution does not require the lender's approval and will 'reinstate' a mortgage up to the day before the final foreclosure sale.

Forbearance or Repayment Plan


A forbearance or repayment plan involves the homeowner negotiating with the mortgage company to allow them to repay back payments over a period of time. The homeowner typically makes their current mortgage payment in addition to a portion of the back payments they owe.

Mortgage Modification


A mortgage modification involves the reduction of one of the following: the interest rate on the loan, the principal balance of the loan, the term of the loan, or any combination of these. These typically result in a lower payment to the homeowner and a more affordable mortgage.

Rent the Property


A homeowner who has a mortgage payment low enough that market rent will allow it to be paid, can convert their property to a rental and use the rental income to pay the mortgage.

Deed in Lieu of Foreclosure


Also known as a 'friendly foreclosure,' a deed in lieu allows the homeowner to return the property to the lender rather than go through the foreclosure process. Lender approval is required for this option, and the homeowner must also vacate the property.

Bankruptcy


Many have considered and marketed bankruptcy as a 'foreclosure solution,' but this is only true in some states and situations. If the homeowner has non-mortgage debts that cause a shortfall of paying their mortgage payments and a personal bankruptcy will eliminate these debts, this may be a viable solution.

Refinance


If a homeowner has sufficient equity in their property and their credit is still in good standing, they may be able to refinance their mortgage.

Servicemembers Civil Relief Act (military personnel only)


If a member of the military is experiencing financial distress due to deployment, and that person can show that their debt was entered into prior to deployment, they may qualify for relief under the Servicemembers Civil Relief Act. The American Bar Association has a network of attorneys that will work with servicemembers in relation to qualifying for this relief.

Sell the Property


Homeowners with sufficient equity can list their property with a qualified agent that understands the foreclosure process in their area.

Short Sale


If a homeowner owes more on their property than it is currently worth, then they can hire a qualified real estate agent to market and sell their property through the negotiation of a short sale with their lender. This typically requires the property to be on the market and the homeowner must have a financial hardship to qualify. Hardship can be simply defined as a material change in the financial stability of the homeowner between the date of the home purchase and the date of the short sale negotiation. Acceptable hardships include but are not limited to: mortgage payment increase, job loss, divorce, excessive debt, forced or unplanned relocation, and more.

The $64,000 question:

The Manhattan residential real estate market is down about 17% since 2008, but we agents have seen a pickup in buyer traffic & contract activity lately. Is it sustainable- and are we out of the woods yet?

A fly in the ointment:

No doubt, higher unemployment is weighing on our market: ~22%-of NYC salaries are tied to the financial sector and we all know that's restructuring big-time, leading to fewer transactions. In fact, New York City's Budget Office expects its financial sector to lose more than 33,000 jobs from the 2007 peak through mid-2009.

The recent uptick in real estate activity may just be pent-up demand at work: like the Standard & Poor's stock index being up a whopping 31% since its March lows, proving that markets tend to have a real emotional component. Only it seems that market's come too far too fast!

We're cut from the same cloth:

Let's keep it real- while no one expects Manhattan to hit the skids like Phoenix (down 50% from their 2006 peak) Los Vegas (down 48% from its peak) or Miami (down 45%), New York City isn't immune from the national recession either.

As proof, Manhattan "listing inventory" through early spring increased more than 30% from 2008, say local appraisers.

Another key measure I follow is called "absorption". It's the number of months it would take to exhaust existing inventory at current rates. It's also deteriorated, and is now nearly 14 months, after averaging 9 months since 2000.

So, unlike in 2007, when 30% of all Manhattan condos were bought by foreigners, we no longer have a weak U.S. dollar to attract foreign buying. Worse, the International Monetary Fund predicts that the world economy will shrink by 1.3% in 2009 (2.5%-3% economic growth is the safety zone).

Focus on fundamentals: prices are just stickier in Manhattan

On the upside, Manhattan's real estate market enjoys a big supply/demand imbalance: Manhattan's population is 1.6 million and total current listings total ~11,500. Only about 30% of residents own their own home, and not too surprising: the median sales price of a Manhattan condo resale last quarter was $985,000, for co-ops it was $587,500.

Also keeping prices up are the co-op boards that scrutinize potential shareholders & often require them to have stellar financials: one of the more selective Park Avenue buildings requires applicants to provide 12 references and have 3-4 times the value of their apartments in cash/liquid assets after closing (no problem!!): Some of our otherwise well-connected clients can still get sticker shock.

Bottom line: the uptick in activity I've seen is due to buyers responding to lower prices, more flexible owners & seasonality effects. Of course we'll help all of our clients understand, and make the most of each opportunity; only I'm not so sure we're totally out of the woods yet.