Lately, a lot of my work as a Massacusetts real estate attorney has involved the unpleasant task of trying to assist people who are in serious default in thier mortgage obligations. I am working with people who have not made a payment in 18 months. They are simply waiting for that knock on the door which means they must leave their homes and start over somewhere else. Tehir children may not be able to stay in the schools they have become used to. They may need to locate in perhaps another part of our country.
Having a lender agree to a short sale perhaps accomplishes a more orderly exit for struggling families. It is not the answer; it is just a more dignified way to acknowledge failure and move on.
The certainty involved with either the short sale or foreclosure route is that the Lender is going to sustain a "loss" when the transaction is completed. The people forced to leave their homes in these situations are losing a lot,
In my limited experience, I have found many people who are way behind in their mortgages willing to "start paying" again. They just got a n ew job; they were sick, now they are recovered. They have made overtures to the Burger King Kids, eithwer by themselves or through lawyers or other professionals. The Lenders really have no idea how to deal with these offers, other than to say no.
Here is my take on this:
1. Rather than push people away, create a mechanism where people can start paying again. Have the property appraised, and then lower the pricnipal amount of the mortgage to its current value.
2. Whatever the arrearage on the mortgage loan, have the Lender forgive it. This may cause a windfall for some; my sense is that those people will be in the minority.
3. Provide the Lender with a tax credit, perhaps for 60% of their total loss in the transaction, and move on.
This will cost all of us a lot of money, but the result would be a new, realistic real estate market where people could start to buy and sell homes. If people were paying on mortgages which were no longer "under water" they would have hope. They could pay their mortgages for a while and create equity. At some point in time, they could sell their homes and buy another. The real estate market would recover. It is just that simple!!!
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