Should I Stay or Should I Go?

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Real Estate Agent with Dudum Real Estate Group - BuyStageSell.com

Should I Stay or Should I Go?

In 1981, English punk rock band The Clash wrote “Should I Stay or Should I Go?” about the rocky personal relationships between members of the band when facing the dilemma of sticking together or breaking up. The lyrics could not be more appropriate for homeowners buried in a mountain of negative equity and wondering what to do. After all “if I go there will be trouble and if I stay it would be double.”

The first step in answering this question is to find out if you qualify for a modification or if you can refinance using the HARP program to take advantage of today’s low interest rates. The process of getting a modification can be very frustrating. It’s “always tease, tease, tease, you’re happy when I am on my knees.” It not only takes a while to get approved, you must keep in mind that the lender does not have a legal obligation to offer or approve a loan modification. It is important to note that they may dual track your file, which means that while they are considering the modification they are moving forward with the foreclosure. Sometimes they “set you free” and foreclose in the middle of your modification application.

Let’s say you get a modification. I have a friend who was approved for what at first appeared to me to be an unbelievable loan modification. The modification did not lower the principle but did lower the interest rate to just 2 percent and locked that in for 30 years! This reduced their payment to the same amount that they would pay to rent a similar property. As such, it certainly seemed reasonable to stay – they get to keep their credit intact and remain owners, while paying no more than they would in rent anyway. Plus the payment remains fixed for 30 years, while rents would increase. But that analysis is incomplete. The question that remains is their status when they might want or need to sell, and when do they break even given the substantial negative equity that would remain?

Life events like divorce, death, job loss, job transfer, and others happen. Also sometimes folks just want to relocate. Based on our analysis, and assuming long-term home price appreciation rates, these folks would need to stay until 2026 to simply BREAK EVEN vs. paying rent. Worse, unless they use the rent savings to pay down principal, they’ll be stuck upside down in the property, and unable to sell without bank approval of a short sale until 2033. So whether or not it is a good deal for them depends a lot on how long they plan to stay.

For my friends, the best financial decision appears to be to try to short sell their current home, or if necessary let the bank foreclose. If they then rent for 3-5 years they should be able to qualify again to buy. Assuming interest rates don’t skyrocket, or some other major change doesn’t occur, this will save them over $100,000, and give them the flexibility to move if needed without being stuck in their current prison of debt until 2033.

Unfortunately, few homeowners facing this decision have the financial skills to really analyze the various scenarios, and few will consult a qualified accountant or other professional to do it for them.

This analysis is different for every homeowner facing this question. How far under water they are, and the terms of the loan modification are clearly important. It also requires some assumptions about price appreciation, rent inflation, and future interest rates. And importantly, it requires some serious thought as to how long they plan to stay, and perhaps some soul searching on the moral implications of walking away.

Bottom line, this question can be answered only by the homeowner based on their current situation and what is best for them. Would you stay or would you go now?

Borrowered generously from the wonderful Michelle Lenahan at Foreclosure Radar.

For more information about loan modifications, short sales and foreclosures, visit www.howtosavemyhouse.net or call Terrylynn, 925-876-0966.

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 DRE #00615420
Terrylynn has been a Realtor in Contra Costa County for over 30 years.  She works with the Dudum Real Estate Group. Terrylynn is a local expert, who believes in specializing for better service to her clients.  She gives talks on Foreclosure Alternatives, Make Home Affordable Programs, Home Staging Consults before you Sell, and is a Senior Real Estate Specialist, Real Estate Collaborative Specialist-Divorce, Certified Residential Professional, EcoBroker and any more. There is no silly question, call now for advice and counsel about your real estate investment.  Click here for a question about the area.  Visit www.BuyStageSell.com to learn more about Terrylynn and her team of Real Estate Professionals and Staging Professionals.  We even stage our short sales! Why?  Because it works.    925 8760966  www.BuyStageSell.com

 

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Re-Blogged 1 time:

Re-Blogged By Re-Blogged At
  1. Christine Rae 02/25/2012 02:12 AM
Topic:
ActiveRain Community
Location:
California Contra Costa County Concord
Tags:
foreclosure
loan modification

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Rainmaker
591,432
Pat Champion
Coldwell Banker Camelot Realty - Mount Dora, FL
Call the "CHAMPION" for all your real estate needs

Great well written post for the home owner you are right each home owner needs to make the decision based on what is best for their situation.

Feb 24, 2012 02:26 AM #1
Rainmaker
211,233
Terrylynn Fisher
Dudum Real Estate Group - BuyStageSell.com - Walnut Creek, CA
HAFA Certified, EcoBroker, CRS, CSP Realtor, Etc.
thanks Pat for the comment. So right you are, the biggest tradegy is waiting too long to get help and losing your options..
Feb 24, 2012 07:19 AM #2
Rainmaker
908,388
Pamela Seley
West Coast Realty Division - Murrieta, CA
Residential Real Estate Agent serving SW RivCo CA

Terrylynn, excellent explanation. I agree every homeowner has to make up their mind to stay or go. Many loan mods do not make sense for a homeowner in the long term, and they will be locked in for years to come.

Feb 25, 2012 02:15 AM #3
Rainmaker
211,233
Terrylynn Fisher
Dudum Real Estate Group - BuyStageSell.com - Walnut Creek, CA
HAFA Certified, EcoBroker, CRS, CSP Realtor, Etc.

Thanks, it's much more complex than at first glance, like most things.  Thanks Pam for the comment.

Mar 02, 2012 01:34 PM #4
Rainmaker
374,441
Lloyd Binen
Certified Realty Services - Saratoga, CA
Silicon Valley Realtor since 1976; 408-373-4411

Terrylynn, yes that is a very complicated calculation with lots of moving parts.  If the payment on a re-financed loan equals today's rent, your friend could also rent the house and break even.  It'll become a positive cash flow as rents increase, and be fully amortized in 30 years when she'll own a house free and clear without damaging her credit and gain significant rental income.  But again, I agree, it's very complicated.

Nov 24, 2012 12:54 PM #5
Rainmaker
1,191,346
Inna Ivchenko
Barcode Properties - Encino, CA
Realtor® • Green • GRI • HAFA • PSC Los Angeles CA

As you said, everyone should answer that question for themselves. Yet, a homeowner should be proactive and look for the information and help. 

Apr 11, 2016 05:16 AM #6
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Rainmaker
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Terrylynn Fisher

HAFA Certified, EcoBroker, CRS, CSP Realtor, Etc.
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