I'm in over my head! (Part One)

It's not just a few people...

I talk all day about real estate at work to clients, collegues and customers. I am pretty active in our local real estate market, and as often happens, friends, family, neighbors and acquantinces, want to talk real estate when they see me. That makes for a lot of real estate talking and I have to admit that I enjoy it, because for me real estate is in my blood and I absolutely love it.

Recently, I noticed I have been talking to a lot of homeowners who are struggling to pay their bills. With the price of gas, food and life's other necessities rising by the minute, the good old paycheck doesn't go as far as it used to. And as often happens; life happens. New brakes for the car, an accident on the job, a layoff or even worse, a sick family member.

A lot of these homeowners are struggling to pay their mortgage, or are not paying it at all, and are facing foreclosure on their home. These people enjoy owning their home, and often love the place they and their family live, but have to make that undesirable choice between feeding and clothing their kids (or themselves) and paying the mortgage company. Stuck between a rock and a hard place is not even a good description. I had one person tell me they felt like the world "is falling on top of me." Another said "We wanted to flip, not flop." Some of these people are heading towards bankruptcy, others even worse. I can not begin to imagine how it would feel to be in this situation.

Many of the folks I talk to, have no equity- or negative equity in their homes. Many re-financed or bought at the top of a strong real estate market (like me!), and have had no equity to cushion the downfall in real estate prices.

So what is one to do?

If you are one of the millions, yes we are talking literally about millions of people here, what should you do? Well that all depends on your exact situation.

The first thing is not going to win me any kisses, but it is super important. The first thing you need to do is MAKE A BUDGET! It is hated by all of us, and done by only a few of us, but it is absolutely impearative for you to make any financial desicion. Make your budget and see if you can afford your house or if you are in over your head. This isn't about ego or extreme optimism. Be realistic and honest with your self. There is nothing wrong with admitting you can not afford something. There is something wrong with convincing yourself you can afford something you can not.

Second, if you are behind on your mortgage, or think you are going to be behind, call your lender and let them know. They may be eager to offer you a workout plan, or do something to keep you in your house, bring your loan current and make it affordable. Remember they want their money, and if you can prove you have the capacity to start repaying, they will be more willing to work with you.

Three, if you have equity in your home and are behind on your payments, sell it. Do whatever you need to get your mortgage current and sell your house. Don't wait for long money on the house, just GET OUT! As James Bond famously said "live to die another day." There is no shame in renting for a few years, getting back on your feet and buying a home later on. Do some research, find the best agent in your area and SELL. Don't price the house "aggresively" or "dreamy", tell your agent you need to sell and SELL. Don't pass go don't collect $200: Just sell. 

Fourth, if you are "upside down", meaning you owe more than your home is worth, and you can't afford your house, now we're talking crisis. And when we talk crisis you need to focus more than ever, remain calm and make some quick and correct decisions. Talk to you lender, call the best short sale agent in your area (I will be happy to point you to one if you don't know where to start), consult an accountant, call a lawyer, and start looking in the paper for rentals.

In Closing

I plan to go a little further into each one of these in future posts. Some will be exciting, most will not, but I hope to get some information out there so people can be well informed before making a decision so absolutely critical to their future.

Being behind on a mortgage and facing foreclosure has to be one of the most stressful situations a person can face. Getting foreclosed on will have a monumental impact on your future. From future employment, housing, and insurance; to family situations; to self esteem. Having your house foreclosed on is one of the hardest things to deal with.

One last thing, if I could. For married couples, or couples period I guess, money is a tough topic and it has been said that it is the number one cause of divorce. Being in any of the situations described above, requires that both people be on the same page. It is imperative, and more important than ever for your relationship to speak to the other half of your partnership about money, your present situation, and your futures. As recently as last week, I heard about a husband who didn't know they were behind on their mortgage until 5 days prior to entering foreclosure! I have seen more divorces lead to foreclosure and foreclosures lead to divorces over the last four years than I wish to see in a lifetime. For the sake of your family and relationship: TALK!

Joshua Holt

Distressed Property Specialist

RE/MAX Coast To Coast

joshholt@remax.net