My New Blog

In these turbulent economic times many people are struggling with their mortgage payments. On the upside, I feel that things are starting to stabilize and we may be seeing the end of the tunnel soon. For buyers this is an historic opportunity, the likes of which we may never see again.

But many people ask me questions about their options if they are under water on their mortgage; some people will benefit from mortgage modifications but it is unclear how many will benefit at this point. In previous email I have sent you information about the recently passed legislation to assist people in saving their homes. Here is a NYTimes summary of that bill: http://www.nytimes.com/imagepages/2009/03/05/business/05housing.graf01.ready.html

ALWAYS TALK TO YOUR BANK IF YOU ARE IN TROUBLE, DON’T AVOID THEM. THEY MAY BE ABLE TO HELP YOU. If you have a record of being proactive with your lender, they will be more inclined to work with you.

When people reach a point that it looks as though keeping an investment does not make sense, they ask me questions about selling their home “short” or foreclosure.

THIS IS NOT LEGAL OR FINANCIAL ADVICE AS TO WHAT YOU CHOOSE TO DO. YOU SHOULD ALWAYS CONSULT YOUR TAX ADVISOR/ATTORNEY. REALTORS ARE NOT TAX OR FINANCIAL ADVISORS. Here is some descriptive information regarding various alternatives when you need to leave a home and you cannot sell it for what you owe:

1) A SHORT SALE: this means that you owe more than your home is worth and you don’t want to try to keep it. You list the home for less than is owed and when offers come in, your agent negotiates with the bank or banks to whom you owe your loans to try to get them to accept less than full payoff.

- There are several steps to prepare for a short sale and you should consult with an experienced realtor to see if you can qualify

The first step is filling out a “Hardship Letter” to the bank to show that you can no longer pay your payments

- You should also consult your financial advisor before beginning this process (NOT just your realtor)

- This is a long process; it can take months from the point of receipt of an offer until the banks accept or reject an offer, but it can work.

- The credit implications of a short sale are not as extreme as a foreclosure. If you continue paying your payments until the sale is

concluded, the credit hit will stay on your report for about 2 years and then the effect starts to diminish

- It will lower your FICO score in the range of 75-100 points (+ or -) depending on whether and when you stop paying your payments.  Again, consult your financial advisor.

2) FORECLOSURE – in this case you stop paying payments on your home altogether. This is called defaulting on your loan.

- Your lenders are now supposed to contact you within 30 days of default to offer you a face to face meeting.

- After that 30 day notice if you continue in default the bank will mail you a Notice of Default (NOD).

- 90 Days after the NOD you will be given a Notice of Sale (NOS) to occur within 30 days at the court house.

- So, altogether there is a period of around six months from quitting payments to the foreclosure sale of your home in California.

- The effect of a foreclosure stays on your credit report for 7 years

- Foreclosure will lower your FICO score approximately 200 points + or -again, consult your financial advisor before choosing this option

- There are many other aspects to foreclosure depending on the state you live in and the kind of loans you have

3) "JINGLE LETTER" – otherwise known as simply mailing in your keys to the bank and saying, “here, take this property back.”

- This sounds simple but apparently it is not recommended. Consult an attorney.

In all cases, it is important for you to consult a tax advisor for any tax implications of the short sale or foreclosure. Do this prior to making any decisions as to what to do.

Now, on a lighter note, let’s hope that the recent stabilization of the stock market is an indicator that we are heading toward better times ahead. No matter what, your health and happiness and the love of family and friends are more fundamental than any investments. Stay positive and this too shall pass.

As always, I am here to help. Feel free to call or refer me to your friends who need assistance.