Is keeping your home is worth it? Many home owners find themselves with loans that were designed to get you into a home. The plan was to get pay raises and with rising real estate values you could get your foot in the door and cash in. However as in all businesses there are cycles and values today may not be as high as when your bought or even as high as your loan balance. Should you walk away? And if yes under what terms?
I firmly believe that your home is a great investment and if possible it is best to keep it for the long run. I will look at both sides and spell out drawbacks and benefits of each alternative to the best of my knowledge. Historically home ownership has been one of the best investments out there. Appreciation has often out produced what one makes in gross income per year.
Some mortgages are adjusting upward every month or after a specific time and some may be adding principal to the total amount you owe each month (these are known as adjustable rate mortgages ARM's and negative amortization loans) they may seem to be digging a deeper and deeper financial hole that you will never be able to climb out of. Before you fall behind in your payments or before your loan adjusts upward into payments you can't afford, try calling your lender and ask them if there is any way you can keep your home? What they would agree to in order to stop the payment from adjustming to the level you can't afford, suggest renegotiating interest rates or loan balances maybe increasing your payments to avoid the next adjustment. Most banks don't want you to get behind in your payments and are willing to be creative so that their loans get paid and you keep your home.
What if your behind already? Often self employed persons suffer from market cycles, others the job promotions don't come through or the loan agent did not explain the drawbacks of the loan program they put you in and you can't afford to keep your home or you just want out before you loose your equity. Selling is always an option but there are some serious sale draw backs that are on the creative side you should know about. The seller financing the loan, the all inclusive deed of trust is where you the seller helps the buyer to purchase the home leaving the home owner with some liabilities. Often licensed real estate agents will explain the draw backs but as in any profession they may not be aware. Always ask their Broker to explain these creative finance alternatives and a qualified tax consultant or an attorney before you sign a contract with these types of loans.
Short Pay transactions can reduce and damage your credit. Is Cancellation of Debt income always taxable? If I lost my home through foreclosure are there tax consequences? California Association of Realtors has published some helpfull info on these issues. What to expect if your are buying a short sale, selling or an agent in a short sale. This negociator explains what is to be expected to be involved in a short sale at this work dock link.
Other alternatives can be selling the property using seller financing an all inclusive deed of trust or assumption of existing financing. Renegotiating interest rates, loan balances with your lending institution or refinancing and keeping your home is often by far the best alternative.
In the last market adjustment of the early 90's many persons just sold the homes having buyers just taking over their payments. Those investers are still out there and waiting for the right properties. Call me I may know some one who may work for your property. Scott Harrison 510-388-4536
Some other resorces include:
Selling at a Loss, Foreclosures, Short Sales
Often terminology needs to be explained below is some common terms and a definition that may be of assistance.
Amortization. Periodic payments of principal and interest to be paid back over the term of a loan.
Appraisal. The estimation of an opinion of value on a property . An appraisal of property is to be based on factual information given by a qualified professional appraiser.
Deed in lieu of foreclosure The giving ownership to the bank before the financial institution takes it through foreclosure from the home owner.
Default. Non-performance under the terms of a contract, note or lease.
Equity. Refers to one’s ownership position in a property, reflecting the difference between market value and the loans against the property.
Equity Participation. The participation by the lender in an active ownership position with the property.
Fair Market Value. This is the price that the property would most likely bring in today’s market.
Foreclosure proceedings When you fail to pay the mortgage or other obligation the steps that are taken to cause the home owner to loose their home in known as foreclosure.
Lien. An encumbrance against real property for an amount of money.
Loss mitigation department The department of financial institutions that negotiates terms of a short sale.
Reassessment. Is re-evaluating the value of a property.
Short sale When the bank takes less than what is owed to them when the home owner is unable to pay the mortgage and sell the property.
Tenant Eviction. Landlord sues to remove tenant from the leased premises, usually due to non-payment or non-conformity to the rules and regulations of the property. (also called a Unlawful Detainer Lawsuit)
Some common questions asked:
Question: In the short sale is the lender in fact the seller?
In a short sale the seller owns the property. But the seller needs the lenders approval to allow the sale to happen since the loan amount (mortgage lien) must be paid to transfer the ownership free of liens to the new owner. If the lender does not agree to take less than what is owed notice default will be placed on the property and foreclosure would follow. After the foreclosure sale (if no one pays all that is owed) the bank becomes the owner and list the property with a Realtor as a REO (real estate owned) on the multiple listing.
Scott Harrison with Coldwell Banker is not an attorney or a loan agent or broker. The information above should not be considered legal advice and though many solutions discussed above are common each lender has their own policies and procedures which very widely. Always seek advice from qualified tax consultants, attorneys and bank officials when acting on any of the discussed topics above.
For your California real estate needs call Scott Harrison at 510-388-4536 or stop by the web site www.ScottGHarrison.com