East Bay Blog

For the last several months I have been talking to some people who are in trouble with their mortgage payments. These people tend to have purchased in the last two years, and have an adjustable rate mortgage that recently reset. Most of these people also took advantage of 100% financing at the time of their purchase. The majority of the people I am seeing in this kind of predicament tend to be people that used sub-prime financing, and were first-time homebuyers. These people were told by lenders that they could easily refinance once their rate changed. The problem is that lenders have become difficult when it comes to approving loans, and with the recent adjustment in property values, some people now owe more than their home is worth.

So, what are the options for these folks? If they can’t refinance and can’t pay, they have three options, renegotiate your existing loan, sell your home, or lose your home through foreclosure or forfeiture. Let’s start with the best option.

1. Renegotiate your existing loan. This is probably your best option. As banks are seeing their inventory of homes grow, the last thing they want to do is take your property. Give your lender a call and ask for a renegotiation. What’s the worst that can happen? They say “no”. Most lenders will not be too accommodating, so it may be a long shot but it’s worth a try. Also, some lenders may not even talk to you about this until you’ve missed several payments, at which time your credit will start to suffer, so be prepared for that.
2. Sell your home. If your property is still worth more than you paid for it, you are in good shape. Just sell your home and move into something more affordable. If your home is not worth enough to cover the loans on it, you’re in a short sale situation. Contact your real estate professional to get an accurate assessment of the current value of your home. If you are going to proceed with a short sale I recommend you speak with a lawyer and tax professional in addition to your Realtor. There will be tax implications for selling your home in a short sale. You may have a large tax bill ahead of you for debt forgiveness from the lender… Be sure to get legal and tax advice. If you are in this situation and need help, give us a call, we can help.
3. Lose your home through foreclosure or forfeiture. If you find that your lender is not going to approve your short sale and will not renegotiation your existing loan you may have no choice to but face foreclosure. If you are in this situation, try to give you property back to the bank before the foreclosure sale. This may avoid a foreclosure hit on your credit. Give you lender a call and let them know your situation, see if they would be willing to take the house back prior to a foreclosure sale.

All of these situations are difficult, but it is the reality that some people find themselves in currently. The best advice I can give is FIRST talk to professionals i.e. a lawyer, a CPA, and a Realtor. Also, don’t wait till the last minute. If you wait until you have received a Notice of Default, it may be too late to do anything. If you need help, give us a call, until next time…