Solutions for No Equity and Falling Behind on the Mortgage

In some markets, people who only borrowed 80% of their home’s value are waking up to the fact that they actually have no equity. It is happening in all communities- Yonkers, Yorktown, Scarsdale, Somers, White Plains, Wappinger Falls, you name it. No demographic, neighborhood or school district is immune from the ripple effect of the declining economy. And if your mortgage adjusts, you lose your job, or any one of a dozen other unfortunate things, you may feel that you are in a dire situation. When the market was hot, people who had problems sold or refinanced rather easily. Problem solved. Not so easy in this climate.

Financial problems cause terrible stress. People that feel that they are trapped in a house they can’t sell because of a high mortgage balance can feel helpless and defeated. My observation is that the stress and worry are actually worse than the shortage of money. The worst thing to do is retreat, withdraw or give up. This doesn’t mean you have scream “Geronimo” and beat your chest. If you take small steps to help yourself you’ll be OK.  There are solutions if you are “upside down” or have negative equity. Help yourself- my most successful short sale clients were always proactive. Here are some things you can do:

• First, communicate with your lender. You’ll feel better that you are being proactive, and the lender will know that you aren’t going off the grid.
• Get help from a professional. List the home with a real estate agent who specializes in short sales. I’ll opine on how to find that agent later.
• Get educated. Google short sales. Go to the library. Understand the process. Taking the mystery away will settle your mind.
• Your hardship package should be treated like an extra credit project that you have to pass in order to not flunk out of school. Get the documents they request, fill out the forms and write that hardship letter. The better the package, the better  the chance for a fast approval on the short sale. Don’t put anything off, and ask your agent for help if you need it.

Now- on choosing an agent for your short sale:

• The agent has to be full-time, with a documented track record,  and references.
• Ask the agent directly how many homes they have sold in the past year, and how many short sales they’ve closed.
• Make sure they document their claims and if they can provide references.
• DON’T EVER let the agent obfuscate your questions by deflecting them and blathering about their company, office or sales team. You want to know how many sales/short sales THEY’VE done.
• Have the agent explain their plan to sell the house. The plan has to make sense. Do they negotiate directly with the lender, or do they have a 3rd party do it? Where will they advertise? What is their opinion of a starting price, and how do they justify that price?
• If you are not comfortable with the broker or agent, do not list with them.

Once you’ve listed the house on the market with an agent who is a good, full- time short sale specialist, pay attention to how many showings get scheduled. If you aren’t getting 1-2 showings a week, it may be time to lower the price. Bear in mind, too, that the house will have to be marketed as a short sale. There are two reasons: first, short sales have to be disclosed in most locales. Second, pre-foreclosures attract more buyers because people are looking for bargains. Since your bottom line is the same no matter what the final price, you should not be reluctant  to lower the price if so advised.

Making the house easy to show is crucial. Be as accommodating as you can be, and only reject showing requests in rare cases of emergency.  In many markets, there are 10 or 20 houses just like yours. If you are in Mahopac and the buyers are coming up from New Rochelle and you don’t allow a showing on a given day, they may not try to reschedule because of all the other options out there. People can’t buy what they don’t see. So, if there is a legitimate contagious illness or emergency, don’t do the showing. Friends visiting, a child’s birthday party, dinner, or a furnace being repaired are no reason to deny a showing. The stakes are too high.

Once an offer does come in make sure that your package for the lender has everything they ask for- bank statements, letters of explanation, disclosures filled out neatly, everything completed. Once your package in in review, the lender will send someone out to do either an appraisal or BPO(broker price opinion) to verify that the home’s value is indeed lower than the loan and in line with the offer.

At that point, you are off to the races. Typically, lenders give the buyer 30 days to close or the file has to be approved again. Make sure that the short sale terms, upon acceptance, are in writing and that you have, in writing, a release from the loan once the deal is closed. At that point you can, thankfully, start packing. That day is the first day of the rest of your life.