Have a Bad Mortgage? Your Options for Relief
I'm not afraid to admit that I was one of the millions, caught up in the frenzy of the "easy refinance." Some of us bought cars, some of us went on luxury vacations. I bought some investment houses. Either way, were all in the same boat: Stuck in bad loans with increasing payments, and not able to refinance due to the sagging housing prices. Let's face it, most of us aren't going to qualify for loans if the house is worth less than we owe. So what are our options? Keep juggling and hang on? Dump the house and take the loss? Who can we trust to help us?
I not late on any payments, but I am working like a dog to keep up with them. I won't be able to sustain this speed for very much longer. You see, I started investing in rental homes a while back and have faithfully stuck with them through thick and thin. Now I'm struggling and looking for help and looking at my options. People keep telling me I'd be in a better position if I had missed some payments!!
For me, "the straw that broke the camel's back" was when the home value finally plummeted a $100000 loss from the when I had taken out the loan. If figured that if the market were to suddenly recover tomorrow (yeah right), and the appreciation was at a healthy 8% a year, it would take me 10 years just to break even! In other words, it would take me a decade just to get back to the original appraised value when I took out the loan. It just doesn't make sense to beat myself up for another 10 years, and my dreams of retiring early, are definitely out the door. So what's the best move?
This is the question I was facing when I first decided I was in trouble. Maybe your in the same position. I owe more on the house than it is NOW worth. The quintessential upside down loan. So I looked at everything from lawyers to banks to real estate agents. Here are the options I found out there. Some of them might be right for you . . . . .
1. Keep on paying and don't change a thing: The success of this method really depends on the terms of loan you have now. If you can hack it for the long term, it is something to consider. However you realize, you don't know when the market will bounce back. In other words, if your house has lost considerable value, who knows when the value will return to at least the price YOU bought it for, let alone the inflated value of "the good old days." All the experts say, "you can't time the market." I guess its true, especially if they themselves were burned as well.
2. You can contact your bank and ask them to modify your loan. It's not hard at all, you just have to call them and ask for the "loan modification department or loss mitigation." This is a good option if your less that $100,000 under water. They'll send you a packet of papers to fill out. Simply send them back, looking as poor as possible and wait. In a few months, they just may come back with a lower interest rate.
3. Short Sale: You could call this a pre-foreclosure sale. Your late on a few payments, and the bank takes a serious look at you and threatens foreclosure. You find a realtor to represent you and present the hardship package. The realtor prices the home at a substantial discount and finds a buyer. He presents the offer to the bank, and the bank usually accepts the deal, which is a preferred position for everyone. The bank is always interested in short sale instead of foreclosure as it saves them 10s of thousands of dollars in hassle and legal fees, and allow both parties to move on to new business. You should remember that there are still negative ramifications for short sales, even if less damaging than those associated with foreclosures and/or bankruptcy. However, short sales do carry less negative credit effects than foreclosures. Short sale sellers are widely seen as less risky than foreclosed sellers. Case in point, Fannie Mae recently adjusted their guidelines to dictate only a two year waiting period for a short sale seller to buy another primary residence, while they extended the waiting period for foreclosures to five years.
4. Deed in Lieu of a Foreclosure. This is the second to the last resort for you, and a solution the bank doesn't particularly like. This is an option where you hand over the house and the bank has to sell it to recover their costs. As part of the deal, the bank let's you off the hook for the loan, and promises to never come after you for any outstanding debt. All of this is negotiated by your rep, and it's all settled by contract.
5. Foreclosure: This is the final option and if you like to go to court, then this is the option for you. In foreclosure, the lender first sends you a summons to appear or foreclosure complaint. The borrower responds to prevent foreclosure and explains the problems at a hearing. The borrower can this point you can still pay the full amount and get the house back during this redemption period. After the redemption period is over, the lender sells the property a public sale or auction and getting as much as they can (or settle for). Any excess goes to you, the original owner/borrower. If the sale amount is less than the loan amount, and in your case it probably will be, you will still owe the balance to the lender. This amount is determined as a result of deficiency proceedings.So as you can see, as we go down the line, the options get worse and worse! As far as my situation, I have to walk away from at least 3 houses. I'm losing a hell of a lot of money, but I'm getting my life back.
I not late on any payments, but I am working like a dog to keep up with them. I won't be able to sustain this speed for very much longer. You see, I started investing in rental homes a while back and have faithfully stuck with them through thick and thin. Now I'm struggling and looking for help and looking at my options. People keep telling me I'd be in a better position if I had missed some payments!!
For me, "the straw that broke the camel's back" was when the home value finally plummeted a $100000 loss from the when I had taken out the loan. If figured that if the market were to suddenly recover tomorrow (yeah right), and the appreciation was at a healthy 8% a year, it would take me 10 years just to break even! In other words, it would take me a decade just to get back to the original appraised value when I took out the loan. It just doesn't make sense to beat myself up for another 10 years, and my dreams of retiring early, are definitely out the door. So what's the best move?
This is the question I was facing when I first decided I was in trouble. Maybe your in the same position. I owe more on the house than it is NOW worth. The quintessential upside down loan. So I looked at everything from lawyers to banks to real estate agents. Here are the options I found out there. Some of them might be right for you . . . . .
1. Keep on paying and don't change a thing: The success of this method really depends on the terms of loan you have now. If you can hack it for the long term, it is something to consider. However you realize, you don't know when the market will bounce back. In other words, if your house has lost considerable value, who knows when the value will return to at least the price YOU bought it for, let alone the inflated value of "the good old days." All the experts say, "you can't time the market." I guess its true, especially if they themselves were burned as well.
2. You can contact your bank and ask them to modify your loan. It's not hard at all, you just have to call them and ask for the "loan modification department or loss mitigation." This is a good option if your less that $100,000 under water. They'll send you a packet of papers to fill out. Simply send them back, looking as poor as possible and wait. In a few months, they just may come back with a lower interest rate.
3. Short Sale: You could call this a pre-foreclosure sale. Your late on a few payments, and the bank takes a serious look at you and threatens foreclosure. You find a realtor to represent you and present the hardship package. The realtor prices the home at a substantial discount and finds a buyer. He presents the offer to the bank, and the bank usually accepts the deal, which is a preferred position for everyone. The bank is always interested in short sale instead of foreclosure as it saves them 10s of thousands of dollars in hassle and legal fees, and allow both parties to move on to new business. You should remember that there are still negative ramifications for short sales, even if less damaging than those associated with foreclosures and/or bankruptcy. However, short sales do carry less negative credit effects than foreclosures. Short sale sellers are widely seen as less risky than foreclosed sellers. Case in point, Fannie Mae recently adjusted their guidelines to dictate only a two year waiting period for a short sale seller to buy another primary residence, while they extended the waiting period for foreclosures to five years.
4. Deed in Lieu of a Foreclosure. This is the second to the last resort for you, and a solution the bank doesn't particularly like. This is an option where you hand over the house and the bank has to sell it to recover their costs. As part of the deal, the bank let's you off the hook for the loan, and promises to never come after you for any outstanding debt. All of this is negotiated by your rep, and it's all settled by contract.
5. Foreclosure: This is the final option and if you like to go to court, then this is the option for you. In foreclosure, the lender first sends you a summons to appear or foreclosure complaint. The borrower responds to prevent foreclosure and explains the problems at a hearing. The borrower can this point you can still pay the full amount and get the house back during this redemption period. After the redemption period is over, the lender sells the property a public sale or auction and getting as much as they can (or settle for). Any excess goes to you, the original owner/borrower. If the sale amount is less than the loan amount, and in your case it probably will be, you will still owe the balance to the lender. This amount is determined as a result of deficiency proceedings.So as you can see, as we go down the line, the options get worse and worse! As far as my situation, I have to walk away from at least 3 houses. I'm losing a hell of a lot of money, but I'm getting my life back.
About the Author:
Did you like my article? Please visit my blog and and see what happens at HouseShortSale.org. You'll learn lots and find resources for your own situation.
posted by Debt Consolidation Loan at
12:26 PM
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