Sacramento Real Estate Views

Underwater Mortgage? No One Wants To Lose Their Home

Homeowners Face Tough Decisions In Brutal Local Economy

The Sacramento region is one of the hardest hit in the housing and economic bust that has gone on since it began in 2007.  No one predicted that it would get as bad as it has gotten.

We’re living through the worst economic downturn since the great depression and arguably, it may even be worse.  And it’s not over yet.

Much of our region is still losing some value.  It looks like the big value losses are over so far as we can see but who can tell for sure. Predictions thus far have been incorrect.

Homeowners who have lost jobs or whose incomes have been dramatically reduced are facing foreclosure or selling their homes short.

Those who are still employed are looking at being severely underwater mortgages with no sign of housing appreciation recovering to what is owed on their homes for years to come.

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It’s Not Your Fault

In both of these examples, none of what’s occurred is not the fault of the homeowner.  None of it.  Who is to blame is best left for “experts” in the media who specialize in placing blame.

So where do we go from here?  We have tough decisions to make, decisions we shouldn’t have to make in the first place but we are where we are.  As cliché this may sound, we must move forward and make a better life for ourselves.

Keeping Your Home

No one wants to lose their home or walk away from an underwater mortgage..no one wants this.  No one wants to sell their home short or go through the foreclosure process..no one wants this either yet so many are.

Given the situation this region is in, most don’t have a choice.

The loan modification process, which looked promising when the program began, has turned into a colossal failure.  Lenders now deny 95% of all loan modifications as 50% of loan modifications that are approved go into default within 6 months.

Still if you must stay in your home, this is the best option in our region.  Click here for a list of loan modification tips to  help you get that done.

Please be aware that a loan modification is something you can do yourself.  There are many scammers out there luring people to pay thousands of dollars for a service that can be done largely for free.

We don’t handle loan modifications but can consult with you regarding our experiences on getting a loan modification through your lender.

Other options include:

Refinancing your mortgage – With a very high percentage of homes underwater, refinancing isn’t an option.  Also, most of the mortgages have interest rates that are below 6% anyway.  A refinanced mortgage in most cases in this region won’t lower the payment enough to make a difference.

If you have some equity (your home is worth more than you owe on your mortgage), you’re struggling to make your mortgage payments and your current mortgage is above 6.5%, you’re a good candidate for a mortgage refinance.  Interest rates are lower than they have been, close to historically low.  This could be a great solution to reduce your mortgage payment. 

If you need a lender referral, I have a great one and can get it to you.  There is a contact me form at the bottom of this page, just fill it out and I’ll get back to you promptly.

Deed in lieu of foreclosure – Deed in lieu of foreclosure is an option that allows you to deed your home back to the lender in exchange for forgiveness of the entire amount owed on the home.

You’ll want to hire a real estate attorney to help with this as there are several legal documents that will need to be executed.  This process does require lender approval.

There are very few of these going on in our market right now due partially to the unpredictable outcome.  You could be faced with a deficiency judgment and there are also potential tax liabilities in the form a 1099c that the lender is required to submit to the IRS.

The Mortgage Debt Forgiveness Act does offer relief from tax liability on purchase money loans but it doesn’t cover refinanced loans.

The primary concern is getting the lender to waive any right to a deficiency judgment.  You’ll need legal representation to safeguard your interests in a deed in lieu of foreclosure.

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A Word of Caution

If you’re behind on your payments, your time frame to get any of your options through lender approval is dramatically shortened.

Fannie Mae, the holder of many, many mortgages, has said that they would not extend trustees sale dates in the foreclosure process and would not extend short sale close dates either.

If you can’t get it done in their time frame, they will foreclose.  Wells Fargo has just announced the same thing and it won’t be long before most lenders, Bank of American, Chase and Citi, follow suit.

Foreclosure is unnecessary if it can be avoided.  Anyone in housing distress should do everything possible to avoid foreclosure.  It devastates your credit and is emotionally stressful as well.

Bankruptcy could be an option for you if you have other debt that is making it tough for you to meet your monthly obligations.  A chapter 13 bankruptcy can eliminate your second mortgage and repaying your debts at pennies on the dollar over time.

For more information on this option, please contact a bankruptcy attorney near you.  I have a friend who recently did this and because she declared chapter 13, her second mortgage was wiped out and the first left her only a first mortgage at market value for the home.  For her this was the perfect solution that kept her in her home.

Short Sale

Selling is the last option to avoid foreclosure.  It must be stressed that foreclosure must be avoided if at all possible.  A short sale is less damaging to the credit rating and gives the seller as much control as possible if moving is really the only option.

People who are selling short have generally exhausted all other options or are convinced that walking away from their underwater mortgage is the best long term financial decision based on the state of the economy going forward.

When you consider that if the Sacramento real estate market were to begin appreciating at the national average of 5.5% per year for the next 5 to 8 years, most underwater mortgages would still be underwater.  Not a happy prospect.

The table below illustrates this.  This home was purchased in 2003 for $303,000 in Rocklin.  It was refinanced in 2005 to combine two loans and take a little money out for some improvements leaving a $369,000 first loan amount.  The current market value of this home is $257,500 leaving the homeowner $111,500 underwater on their mortgage.

You Are Not Alone

Please keep in mind that you’re not alone. If your situation has you here considering your options because you are either underwater on your mortgage, are considering walking away from your home or have missed payment and have received a notice of default.

We know where you are and can help you in considering what is the best option for your situation.   For a confidential consultation please fill out the form below and we’ll get back to you promptly.

Thanks for visiting!

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