I've worked with a lot of distressed homeowners in the past few years, and they all have one thing in common. They all waited until the last minute to try to save their homes. It breaks my heart when distressed homeowners call with the hope that I can perform some sort of magic that will ultimately help them either save their home or they think I can sell their home for what they owe. The truth is, most call minutes before foreclosure. If I could offer them advice early on, it would look something like this:
- If you're a two income family and one income is lost - take inventory. How long can you
survive on one income? Be totally honest with yourself. - Do you have enough money set aside to give you time to formulate a plan if a new job isn't found right away? How long is that? A month, three months, six months, a year, longer? The answer to that is important. Missed payments hurt your credit report more than a short sale or deed in lieu of foreclosure. Do everything you can to continue with the housepayments.
- When did you buy your house, and how much did
you pay for it? Do you have a second? How close is your balance to the current city/county assessment? Over, under? - Are you upside-down, or under water? If so, how much?
If a short sale becomes inevitable you're better off to pay off the first mortgage first. They might become an advocate to help you work with the second. I had one help negotiate with the second position because they were paid in full. - If you had a lower payment, could you make it? A loan modification may be possible, but know up front that it's a lot of work, and you may not qualify. Keep making payments, and have a backup plan.
- Before selling your house becomes a necessity what else could you live
without? TV, second or third car, gym membership, weekly spa treatments, expensive vacations, etc. It's amazing how much money just slips through your fingers. Little stuff can add up to more than you think. - Make a commitment to make the hard choices. If selling your house becomes a necessity make sure everyone responsible for the mortgage payments is in agreement. One partner can derail contract after contract.
- Call an attorney long before your cash reserves run out. Get legal advice about short sales, deed in lieu and foreclosure.
- Call a qualified distressed real estate professional. Interview agents to find out if they have worked with people in your situation. A lot of agents are "certified experts" who have
never
done a short sale or worked through a deed in lieu or talked with a homeowner on the verge of foreclosure. - Set reassessment dates to determine if drastic action is going to take placee, and if so, when? If things turn around in three months you're ahead of the game. You've eliminated unnecessary expenses, learned
how to live on one income and you've learned a mountain of things that might help another friend or family member in the future. - If your situation doesn't turnaround you're ready for the worst.
Your client needs a reality check. I can't overemphasize the absolute necessity of personal honesty during this process. Too many distressed homeowners want to ignore the potential problems until the problems are right on top of them. It's too late for many at that point. It's far better to be prepared and not need to make drastic changes than to deny the possibilities and then try to scramble at the last moment in a futile effort.
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