Helping your clients determine if they're distressed homeowners
In yet another of his great posts, Mike Cooper hits on a touchy subject nearly every American must think of from time to time- how bad is bad? When will I know it's time to throw in the towel...tip the king...raise the white flag?
One aspect of the equation Mike didn't touch upon, however, is how bankruptcy- seemingly foreclosure's distant cousin- has played an equal part in destroying some folks' lives. I've seen it happen many times- and the pain is pretty much the same whether the cause be borrower's greed or lender's deception.
I've had many tenant prospects over the years, and I've heard many sob stories. Some folks I feel for, many I struggle to stave off the eye-roll as they tell their fables. Of homeowners losing their places and relatively forced into renting for a while, they usually fall into one of two categories:
- Those who haven't been paying their mortgage, but have kept everything else current. This doesn't make a lot of sense to me, but we march on...
- Those who've been paying their mortgage, but have let everything else go
Bankruptcy runs amongst both categories. Some folks have had financial problems and elected to cut their losses and re-group, while others have been a bit more stubborn or prideful for a while- yet ended up with a bankruptcy anyway.
Let there be no doubt- the best way to live is to live up to your obligations and pay what you should- that's what we should all strive to do. But procrastinating and delaying what one knows is the inevitable isn't good. It leads to panic, which leads to worse and even worse decisions. It's a tough thing to do in the short term, but it's often best in the long-term for one to take honest stock of themselves and act accordingly.
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 house
payments.
- 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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Give me a call for all your real estate needs, and let's make something amazing happen.
Mike Cooper @ Cornerstone Business Group, Inc., 888-722-6029
Real Estate Sales and Property Management
(Disclaimer: All grammatical mistakes, punctuation breakdowns and misspellings are purely for your amusement and entertainment. Feel free to cackle.)
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