Your Property is Underwater - What is the solution?

The Distressed Property Owner's "Goal" is an interesting situation for each individual and for each individual experiencing this event, it is different.  I like to help my client visualize creating a solution or "goal" by telling a visualization story.

Imagine you are in a dark tunnel and you can only go in one direction - forward.  It costs you for every inch you move forward in the tunnel.  The cost is the amount of "short fall" or loss you incur every day on the property that is giving you financial problems. No one knows where the end of the tunnel is, and no one knows how long it will take to get to the end of the tunnel. Your job, as the one paying the mortgage, is to "forecast" or predict where the end of the tunnel may be. 

Once you forecast where the light at the end of the tunnel could be, you can measure how much it is going to cost to get to there. (The "end of the tunnel" is where you can either sell the property and recoup your loss or at least the mortgage you owe, plus the amount you spent to get to the "end of the tunnel". It may be where the property cash flow turns profitable).

Now you have at least a predictive cost to "see the light" at the end of the tunnel.

Of course there are plenty of variables - like you may have under-predicted the time factor, or over-predicted the cost because you eventually get a rent income that helps you carry the property at less cost.  These differences are your tolerance for risk. 

Next you find out what it costs to get out now, at a loss.  This is your "escape pod cost".  The escape pod could be a modification, short sale or bankruptcy. 

You try to anticipate the cost to have the short sale, including possible deficiency payments.  If you want to see how you compare in your philosophy compared to others in distress, see a recent Wall Street Journal blog on walking away from property.

Measuring the "today" escape cost versus the "tomorrow" light at the end of the tunnel cost, should give you a measure of how to proceed with the property, be it short sale, modification, or bankruptcy.

Copyright 2009 Richard P. Zaretsky, Esq.

Be sure to contact your own attorney for your state laws, and always consult your own attorney on any legal decision you need to make.  This article is for information purposes and is not specific advice to any one reader.

Richard Zaretsky, Esq., RICHARD P. ZARETSKY P.A. ATTORNEYS AT LAW, 1655 PALM BEACH LAKES BLVD, SUITE 900, WEST PALM BEACH, FLORIDA 33401, PHONE 561 689 6660  RPZ99@Florida-Counsel.com - FLORIDA BAR BOARD CERTIFIED IN REAL ESTATE LAW - We assist Brokers and Sellers with Short Sales and Modifications and Consult with Brokers and Sellers Nationwide!  Shortsales@Florida-Counsel.com  New Website www.Florida-Counsel.com.  See our easy to find articles at Need Short Sale Information? - These Articles Probably Answer Your Question