Looking at the current housing market and the plight of so many people everywhere, many people and institutions have serious, potentially life-altering decisions they either have to make, or could be faced with soon enough. What I’m talking about is the possibility of people who have to sell and are upside down in their mortgages. Do you continue to struggle to make payments on a mortgage that you can no longer afford? Do you let the house simply go into foreclosure so that the house goes back to the bank? How about a Short-Sale, where the home gets sold for less than what is owed on it and the bank (usually the 1st lien holder) writes off the difference and the second lien-holder gets minimal compensation (usually one or two thousand)? This strategy is becoming more talked about, though it can take several months for a deal to close after the highest offer. Many are realizing that unless you have skipped several payments, the banks won’t talk to you. This can really affect your credit for years. But like most of us, you don’t want to ruin your credit.
Some states have seen many people simply walk away from their homes after living several months without paying, vacate and only to send the keys back to the bank later, which is and will be destructive to their credit. But the owners feel they have no option.
Even the Wall Street Journal acknowledges the difficulty everyone involved in the short sale transaction must sometimes go through in these potentially time-consuming moves.
The banks aren’t in the business of holding real estate for many reasons. Yet “they want to work with the homeowner.” I am reminded of a lesson in “Letting Go” I learned many years ago: In Africa, many tribes consider monkey a delicacy. In order to catch them, the hunters will dig holes just big enough for a monkey to stick its hand into. They will put bait into the bottom of it for them to entice the monkey to reach in and grab it. What happens, is when they try to pull it out with their bunched up fist is that they get stuck and hence, caught.
I see this as the perfect metaphor for what banks are doing to many homeowners. They say they want to work with those struggling to make payments, yet are reluctant to change the terms of loans because of the staggering losses (from thousands of loans) incurred by investors holding these notes. Yet to go through the entire foreclosure process on average costs the lender (and local government) $40,000-$60,000 (legal fees, upkeep, taxes, repairs, etc). Then when the home is finally sold in a “declining” market, the bank looses even more money. Then, as values decline more homes and other banks’ loans go “upside down.” So both sides essentially get caught. And to top it off, according to much mainstream media, Bloomberg and even a recent article in the Washington Post (4-23-08) lenders are swamped with requests to modify loan terms. And the cycle continues. However, there is hope...awareness is half the battle, lenders and the government are attempting to connect the dots.What is the next move? If you think that your home loan is going to get out of control, by all means, call an attorney and then your lender and try to work something out. Be persistent. It is most assuredly in the best interest of all banks and communities nationwide to salvage a defaulting loan. This too shall pass.