The bubble, the shift, the downward spiral - we're all feeling the pinch of falling housing prices. If your house is worth less than you owe when you purchased it, there is one fact:
Every Situation is Different, but You are not Alone.
In this situation, the most important thing you can do is know your options and speak to someone who can give financial or legal advice. In February of 2009, a colleague, myself, and an attorney hosted a Short Sale seminar locally in Port St Lucie, FL. We spent a few hours going over what the options are for a homeowner whose house value is now below what they paid for it.
There are five choices:
The degree to which these options hurt your credit increases from one to five.
Making a decision about what to do is emotional and stressful. Unfortunately you can't throw in the towel or turn in the keys and walk away. The more you are willing to work with and communicate to your lender, understand your options, and seek professional advice - the smoother this process will go.
For options 1 - 3, the bank is typically going to want your story and all of your current financials. What I call this is a "reverse mortgage application" - it's like proving how you can't afford the house. The general paperwork the bank is going to need will be a Hardship Letter (explaining on one page why you are where you are), Income Information, Tax Returns, A Breakdown of your Bills (like a montly budget), and Bank Statements.
Important Note: When the bank or negotiator requests this information - submit ALL of it at the SAME time. If you send it piece by piece you'll get shoved to the bottom of their pile.
I am experienced in helping homeowners make these tough decisions.
If you would like to make a no-obligation appointment to talk about your options, please contact me.
My first questions when speaking to a client about their mortgage versus the value usually are along these lines:
The Big Question is whether you have to be late on a payment in order for a bank to work with you?
The short answer: if you're current on your payments, it may be hard for the bank or negotiator to take you seriously. Please consult an accountant or an attorney that can give you the best advice.
A breakdown of the five options:
1. Modification of Your Mortgage Loan:
There are many types and scenarios for a modification, and each lender's offering is different. Usually you'll speak to their "Loss Mitigation" department where they will ask many questions to find out what options are available to you.
Your best option for modification is for Principle Reduction - the bank finds the current value of your house and then reduces the balance of your loan to 90 - 100% of that value. Even though this option has the highest likliehood of keeping a homeowner in their home, most banks won't offer principle reduction.
What they do offer can be any array of choices ranging from allowing the owner to skip a few payments or reducing the interest rate for a period of time. I think the current statistic is that 40% of modified loans end up back in default.
2. Short Sale the Property:
The term "Short" doesn't mean the time process, it is referring to the concept of selling the house for less than (short of) the balance that is owed on the mortgage. If you ultimately want to be rid of the property, this option is the best and least credit-damaging (however, the late payments on your credit report will not help). When listing your property for sale with a Realtor, the general rule of thumb is to have the listing price at or below the comparable homes to attract a buyer in the fastest amount of time. Once you have a buyer make an offer and you accept their offer, your Realtor will now submit the offer (along with your hardship package) to the bank/lender. The lender orders a BPO, which is a Broker's Price Opinion - kind of like a mini-appraisal from a third party (usually a broker or realtor) of what the property is currently valued out. The bank reviews your financials, assesses what their loss will be compared to the current value of the property, and then either accepts or rejects the buyer's offer.
Maybe the buyer made an offer below the market value; that's okay, because now we can explain in the listing notes "Bank approved listing price" which signals other Realtors that the house has been approved by the bank and we have open communication.
3. Deed In Lieu of Foreclosure:
The modification didn't help, no one is willing to buy the property as short sale - the next option is a Deed In Lieu of a Foreclosure which is basically giving the house back to the bank without going through the foreclosure process.
4. Bankruptcy:
Talk to an attorney about this - the attorney at our seminar stated repeatedly, "You can file bankruptcy at any time." As I understand it, the BK laws are changing and the debt related to a primary residence may not be so easy to get rid of. That's all I got to say `bout that.
5. Foreclosure:
This is the lender/bank taking legal action and suing the homeowner for not paying their loan and taking the house (collateral) back. Foreclosures will stay on a credit report for seven years and are the ugliest of blemishes. Once the bank has the house back, they now consider it "REO," or Real Estate Owned and will normally put it on the market for sale with a Realtor.
I am experienced in helping homeowners make these tough decisions.
If you would like to make an appointment to talk about your options, please contact me.Copyright 2009 | Sarah Taylor, Port St Lucie Realtor with Re/Max Masterpiece Realty
I subscribe to the City of Port St Lucie's online newsletter and found that NPR had done a story in February on Port St Lucie. The national media attention would normally be considered a good thing; however, the story wasn't favorable for the city and I'm proud to say that PSL came back with a rebuttal to clear the air and make clear what the story portrayed and what was incorrect.
From NPR's All Things Considered on February 18th, 2009:
Listen/read full article here.
Today, Port St. Lucie, the largest city in St. Lucie County, is a suburban dream gone bad. It has the nation's eighth-worst foreclosure rate. Overgrown lots, vacant houses and "for sale by bank" signs are found on nearly every block.
[Doug] Coward, County Commissioner, wants the county to declare a state of emergency. Doing so would give administrators access to $17 million in county emergency reserve funds.
The rebuttal for the City of Port St Lucie shortly thereafter:
Read the full article here.
An erroneous statement by National Public Radio (NPR) was broadcast across the country Wednesday, mischaracterizing the city's economic condition and potentially damaging the city's favorable reputation within the financial industry.
Though the content of the story accurately stated that St. Lucie County is considering declaring a state of emergency to address economic problems, the promotional tease for the story that ran earlier in the program misrepresented the city's reputation for being one of the state's financially best-run cities.The tease stated, "Not long ago, Port St. Lucie, Florida was one of the nation's fastest growing cities ... Now the city may declare itself an economic disaster area, going from boom times to bust." Furthermore, the subtitle to the NPR Web version says, "Port St. Lucie, Fla., was America's fastest growing city. Now it might be a disaster area."
The City of Port St. Lucie is not an economic disaster area and has no plan or proposal to declare such. City management believes the statement was aired irresponsibly, especially considering that no one from NPR contacted city officials for clarification of the concept, which was originated by a St. Lucie County official, not by anyone from city government.
Thoughts?
Comment below:
One early morning I woke and checked my blackberry to see that one of my buyers had emailed me late at night in a panic. She was worried her mortgage lender lied and gave her an adjustable rate mortgage. Earlier that day we had spent time viewing properties and had come back to successfully make an offer on a house they really liked. As follow up, I emailed my buyers a copy of the offer and their mortgage approval letter. It was this pre-approval letter that caused the confusion. (Banking lingo can be a bit daunting!)
"What do you mean my rate is floating??" the panic-stricken email read. "I thought I had a fixed rate mortgage! I don't want my mortgage payments to increase and then I can't afford the house later down the road!" Immediately I put myself in my buyer's shoes and could see how frightening that could be to find out the rate isn't what you had thought. On top of trying to get some sleep, now she was stressing over this at 1 am!
While rubbing my eyes and pushing my fat cat out of the way, I began to type back an explanation:
"Floating" is not the same as Adjustable Rate but I can see how the two could be confused; they sound very similar. Typically when you apply for a Pre-Approval or a Pre-Qualification mortgage the lender qualifies you at the current interest rate. Because there is no home or contract (yet) they "float" the rate.
The opposite of Float? - Lock. You won't lock your rate until you have a bi-lateral contract, which means the seller agrees to sell you the property. Usually a lock is good for 30 to 45 days - the time it takes until you close the mortgage and sign the final paperwork. Then once you sign the final paperwork your rate will be whatever it is that you agreed upon, which nowadays seems to be a fixed for 30 years or so.
The opposite of Fixed? - Adjustable (sometimes called Variable). Ahhhh... Here is where my buyer got confused. She confused float with adjustable and thought her rate would adjust monthly or annually with her mortgage. But what she was reading was that it was a fixed rate floating until she finds a property. (Say that 5 times fast).
So just remember that you have a choice of a fixed or variable (adjustable) rate. Your rate is floating until you find a property and have a bi-lateral contract. At that time, you ask your mortgage lender to lock your rate.
Now that you're all brushed up on your mortgage lingo, go in confidence when you apply for your pre-approval.
Copyright 2009 Sarah Taylor
Join Re/Max Masterpiece and Boston National Title for a comprehensive short sale seminar on Tuesday, February 24th, 2009.
Location: Port St Lucie Community Center
2195 SE Airoso Blvd, Port St Lucie, FL 34984
Time: 6:00 - 8pm
Representatives from Boston National Title as well as my collegue Sandy Krischke and I will help answer questions on:
This event will be the kick-off for on-going seminars discussing "hot topics" in today's market.
I'm a Florida Native and help buyers and sellers in my hometown - Port St. Lucie. Visit my website to chat with me and get your questions answered.
I define myself as a Real Estate Maven. In life there are experts who know a lot about particular niches - like a gear head or a foodie. Ask them about cars or cooking and they’ll tell you everything you want to know.
Then there are mavens. Mavens are similar to experts in that they collect information. However, a maven uses this information to YOUR benefit. They derive joy from helping others succeed based on their expert advice.
As a Real Estate Maven I collect information about the market, buying, selling, and everything in between and I dispense those benefits directly to my customers, friends, and anyone else who needs a hand.
Visit my website to learn more about Port St Lucie and the greater Treasure Coast.
It's easy to say "I work with anyone and anything" but I would be lying if I didn't expound on this and state that I absolutely adore working with first time homebuyers.
Naturally, I can identify with a young couple's lifestyle and I enjoy helping them work through the scenarios of buying a home and finding what would be a smart financial fit. My best advice is to be as educated about buying a home as possible - this puts you in greater control and you will know what to expect as you journey through the process.
Give me a call/email/IM if you are thinking about buying and just need to bounce some ideas off me or need an opinion on what to do.
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