Your Property is Underwater - What is the solution?

Real Estate Attorney with THE ZARETSKY LAW GROUP - Board Certified Real Estate Atty and AUTOMATED LAND TITLE COMPANY

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 - 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!  New Website  See our easy to find articles at Need Short Sale Information? - These Articles Probably Answer Your Question


Re-Blogged 3 times:

Re-Blogged By Re-Blogged At
  1. Monique Hailer 06/22/2009 02:54 PM
  2. Gabe Sanders 06/22/2009 11:10 PM
  3. Speed Equity® Mortgage Acceleration System 08/08/2010 08:56 PM
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Sharon Alters
Coldwell Banker Vanguard Realty - 904-673-2308 - Fleming Island, FL
Realtor - Homes for Sale Fleming Island FL

Richard, this is a good analogy for an investor trying to weigh selling a property vs. keeping it at a loss.


Jun 22, 2009 01:51 PM #1
Russ Ravary ~ Metro Detroit Realtor call (248) 310-6239
Real Estate One - Commerce, MI
Michigan homes for sale ~

No reason to do a short sale in my book.  The only person that makes out is the real estate agent.  Why take on more debt when you can let it go to foreclosure.

Jun 22, 2009 02:13 PM #2
Monique Hailer
Schooner Bay Realty., Inc. & CENTURY 21 New Millenniun - Cape Coral, FL
South West Florida & Southern Maryland Homes

Thanks for the post Richard. It seems I have been preaching the same thoughts to many sellers these days.

Jun 22, 2009 02:54 PM #3

What percentage of loans are being modified -- I hear less than 1%.


Russ says to let it go to foreclosure -- remind me not to hire Russ!


The ONLY logical course is to short sell.  Even if bankruptcy is the best alternative in light of the overall debt picture, it is a virtual slam dunk that the best course of action with respect to a real property disposition in bankruptcy is a short sale.



Jun 22, 2009 03:21 PM #4
Gabe Sanders
Real Estate of Florida specializing in Martin County Residential Homes, Condos and Land Sales - Stuart, FL
Stuart Florida Real Estate

The most important thing, is not to sit in the dark and wait till it's too late to do anything, go out be proactive and see what can be done.  Of course, when your embarrasses and hurting it's easier said than done.

Jun 22, 2009 11:10 PM #5

Russ - I am not sure whether Michigan is a recourse state, but here in Florida the lender can sue for a deficiency judgment of someone takes your advice! Please be advised that this blog is Florida-centric and advice needs to be tailored to the specific legal consequences faced by Florida homeowners.

The tunnel analogy is a good one.  It is also important to note that there is a psychological benefit to having "certainty" that one will not be trapped in the tunnel for perhaps 10-15 years before they are "right side up." For many sellers, having the comfort that they can look outside of their metro area should they need to job hunt in this economy.  Carrying the property as a rental at a loss is unappealing, when you are certain to be out of pocket on the rental and risking "tenants from hell" (especially for someone who ends up being an absentee landlord after a job relocation). 


Thanks Richard for the sage advice!

Jun 23, 2009 01:45 AM #6
Angela Joy Pacheco
Keller Williams - Martinsburg, WV

Richard-I found your post well researched and informative. Here in the Eastern Panhandle of West Virginia about 85% of our sales are from short sales or foreclosures. A year ago agents wouldn't go near a short sale listing, but with recent changes at the banks they are becoming easier to sell.

I find that sellers are choosing short-sale as it give them relief from the months of stress/worry they've had over trying to pay the mortgage. For some waiting until forclosure just prolongs their agony.


Jun 24, 2009 02:45 AM #7
Richard Zaretsky
THE ZARETSKY LAW GROUP - Board Certified Real Estate Atty and AUTOMATED LAND TITLE COMPANY - West Palm Beach, FL
Florida Real Estate Attorney

Russ -

Per some comments above on your 'let it go to foreclosure' statement - see my article from some months back - FORECLOSURE DEFICIENCY JUDGMENT or SHORT SALE PROMISSORY NOTE or BANKRUPTCY - REVISITED

Jul 02, 2009 11:59 PM #8
Michael Collins
*ROCK REALTY|Broker|Realtor|Real Estate|WI Short Sale Agent* - Janesville, WI
CDPE, SFR , Wisconsin Short Sale Specialist Realto

Russ #2, every short sale but one that I have negotiated did not include a promissory note.  The banks agreed to not pursue it.

Michael Collins - Broker
Rock Realty


May 06, 2010 06:45 AM #9
Speed Equity® Mortgage Acceleration System
Speed Equity® - Olympia, WA
We help your clients Own Their Homes Years Sooner

Richard, it's 4:00 pm Sunday afternoon and I am thoroughly engrossed in your blogs.

Aug 08, 2010 12:01 PM #10
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