One side says it’ll take years to get the appreciation back to make the home worth the investment, others say there are credit, ethical, and moral issues. So which one is best for you and your situation? Unfortunately, that’s a decision you will ultimately have to decide for yourself after looking at the facts.

Recently, a college professor said that over leveraged homeowners are better off by walking away from their houses – his reasoning is simple. A family has better use for the money they are throwing away on an upside down house. That money can be used for retirement, college savings, travel, or investments

There are websites online like payorgo.com that give you a glimpse to see if it’s better to financially walk away. Other services, such as Walk Away, give you guidance on the best way to walk away from your property and they will keep you inform how long you have to live in the  house rent free.

The problem with walking away is it can cause a long term credit hardship that is unnecessary. A foreclosure will affect your credit 7-10 years. You will be obligated to disclose in future loans you have a foreclosure.  You also will not be able to apply for a Fannie or Freddie MAC loan for 5 years.

So what is the answer.  A hybrid solution is best, one where you walk away by  selling the house as a short sale. A short sale is when you lender will accept a reduced payoff to release you from your mortgage. The bank will forgive the homeowner for the amount over the purchase price.  Once the property is release the house can be sold to another buyer. The short sale has two main benefits. One it’s not a foreclosure, you can restore your credit in about 2 years if you keep all your other accounts current. Two, you will feel a lot better about yourself,  because morally and ethically you did your best to help the bank recover some of their money back.

Now there are some items you need to be aware of  when selling a house as a short sale.

• The bank may not approve it, if they believe their is no hardship.
• Also, if the house is not your primary residence you may have to pay taxes on the amount forgiven.  These tax implications can be easily addressed by consulting your tax accountant.
• In some cases, the bank may also want a promissory note for a percentage of the amount that was forgiven to release the note.   The promissory note can be address during the negotiations with the bank, so it is reduced or completely eliminated.

Even with those minor bumps in the road – compared to just walking away and letting a property go into foreclosure,  a short sale is many time better for your financial and credit future. Financially a short sale will allow you to re-establish your credit much faster.

If you have questions about walking away or if a short sale is right for you. Please give us a call. We will provide you with straight answers and let you choose what solution is best for you. CALL US TODAY! Our number is 1-877-USELL-IT.

Note:  This post in no shape or form advocates walking away from your property. If you decide to walk away, you should seek legal and tax advice. Our goal is to show you how a short sale may benefit you vs foreclosure.

If you are going to use a lawyer or loan modification agency ask to see what paperwork they will submit to the bank. How do they determine the Debt to Income (DTI) ratio. This is very important, some lawyers and agencies just pass the information you give them to your lender. You could have done this yourself and saved your money. Some don’t even predetermine if you would qualify for a loan modification. If they are not predetermining what you can really afford, they are just wasting your time and money. They should be providing your lender with a recommendation on what amount you could really afford based on your income/expenses. This is the reason you are paying them a fee. Everything else you could do yourself. A sample print out should show what your income is and what your expenses are, what interest rate and loan term changes are needed for you to afford your payments.

What about forensic audits? A forensic audit should only be used if you are prepared to file lawsuit to enforce the violations of your loan documentation. In other words, according to the lawyer I spoke to after paying for forensic audit, if they find any faults in the loan documents the only way to force the bank to make major changes to your loan like principal reduction would be to file a lawsuit. The estimated cost he gave me was minimum $7500, not including the court fees. In other words, they real you in with a promise and hit you with more fees. Try to go to a place that offers a free forensic audit, before paying for one.

My recommedation is to find a lawyer or agency that has the proper software to generate the loan modification proposal with a recommendation. If they don’t have a software program they are most likely doing it by hand, which means they are probably

Ever

I usually hear this question three to four times a week. And while most lawyers and loan modification agencies want you to believe banks are giving out modifications left and right. The truth is banks for the most part are just moving the past due balances to the arrears and reducing the interest rate for 5 years. What if you are upside-down, how long will it take for you to make your money back?

Well, I read an article recently that mentioned that most homes have lost about 30% value in South Florida. Before the big housing boom, most areas appreciated about 3% a year. So lets say for the sake of argument, the housing market stabilizes this year and next year your house starts appreciating again after dropping 30% in value. How long will it take for your property to be worth the amount of money you owe using a 3% appreciation rate. You guessed it, about 10 years. That is not taking into account if the market remains flat for 2-3 years like most experts are predicting.

So at the end of ten years your property will be worth the amount of money you owe according to this article and you would have paid a whole lot of interest. I use this example often to illustrate that even if the bank accepts to modify your loan, it may take a long time for you to see a return on your investment.

Going back to what are your chances of a loan modification. It really all comes down to your DTI, debt to income ration. If you can prove you make enough money to cover your expenses and reduced mortgage and you have a valid hardship (divorce, medical, layoff, etc…), then you have a very good chance to be approved.  Just don’t expect the results that everyone is promising.

Till next time,

Ever

Talk you soon and let me know if there is anything I can help answer for you about your situation. Thanks again and have a nice day.

Regards,

Ever