The first thing we do is LISTEN. It’s a rare but effective strategy.
We can’t begin to know how to help a homeowner unless we understand their unique circumstances and needs.
There are only six choices:
- Loan Modification
- Refinance
- Short Sale
- Foreclosure
- Bankruptcy
- Status Quo
Many real estate professionals practice being “short sale pushers.” It’s good for them but not always good for the homeowner. We will not do that. The wrong choice could cause long term harm.
Once we understand the needs, we GUIDE them to the choices that might work best for their circumstances and introduce them to the professionals that can best help them.
We do not believe in a “one size fits all” plan.
If you learn only one thing from visiting us I hope it’s that you allow yourself to be free of guilt and shame over your circumstances. We are in the midst of the greatest economic downturn in our history as a nation. I don’t believe you are personally responsible for turning our economy upside down nor do I think you are personally responsible for dropping property values 20% to 70%. If you are somehow responsible, please contact us for a different answer to this question.
The only thing you are really guilty of is BAD TIMING. You probably purchased or refinanced your property in 2005, 2006 or 2007. Your circumstances would be quite different if you had purchased or refinanced in 2002 or 2003, wouldn’t they?
If ever there was truth to the notion that there is safety in numbers, you can feel safe in the knowledge that millions of homeowners share your pain and your circumstances. I do not wish to make light of the problem but let’s recognize it for what it truly is. This is “where” you are in life and not “who” you are in life.
Oversimplified, the short answer is….unfortunately, yes. In reality, this very difficult choice is personal and must only be made after careful consideration of all the benefits and consequences. First I’d like to address the personal and emotional challenges of this issue.
We often feel compelled to continue making mortgage payments even when we can’t afford to continue any longer. Pride, commitment, honor, duty and obligation are all very deeply rooted core beliefs (and rightfully so) that interfere with our ability to make objective choices which might be best for our personal well being and that of our family.
Our sense of duty and obligation is so strong that many of us will borrow from credit cards, draw from savings or retirement accounts (don’t EVER do that) or borrow money from family and friends in order to make the mortgage payment. We don’t realize that digging the hole deeper will not help us get out of our hole. The first rule of recovery when digging a hole is to STOP DIGGING!
When you are deeply upside down in property value (meaning your home is worth less than you owe), you must realize how long it will take for your property value to return to its pre-recession levels. If you have lost more than 25% in value, it’s not likely that your home will return to its prior value in our generation. Think about that. It could take an entire generation for values to restore themselves above the amount that you owe on the property.
That means that you can’t out save this economic downturn. You can’t out live it. You can’t out last it. Every dollar you spend on your mortgage, when significantly upside down, is a dollar that will not be returned. That same dollar will not provide value to you and cannot be spent on your family. If you are upside down in value, you are effectively renting your home.
Do you mind if I repeat that? If you are upside down in value, you are renting your home.
So when choosing whether to continue making mortgage payments you have to first decide what value you receive in return, if any?
As a practical matter, we intellectually rationalize that it’s important to continue paying the mortgage in order to preserve our credit (which is a false belief). Please refer to credit consequences of a short sale for more information.
In addition, it is virtually impossible to get your bank/lien holder to approve a short sale request if you are still current on your payments. Not totally impossible, just virtually impossible. From their perspective, non-payment is a default. Why would they help you to default on their mortgage? They wouldn’t.
Banks/lien holders are very conscious of our private guilt and our need to honorably fulfill our commitments. They would prefer that we listen to our inner conscience and not default even if it’s not in our personal best interest, or that of our family.
It will be damaged. That’s the unfortunate truth. But keep in perspective what it means to have damaged credit and its practical effect on your day to day life. Credit has value only when borrowing money or when being used as a variable in determining eligibility for certain jobs/employment opportunities (or security clearances).
If your job/employment is not dependant on your credit, a short sale will have no impact. If you don’t expect, or need to, borrow money in the next 24 +/- months, a short sale will have little to no impact in your daily life.
Credit will self repair if you return to paying creditors on-time and as agreed. The unfortunate, yet minimal, risk of having damaged credit is one of the unintended consequences of a short sale. The only way to avoid damaged credit is to continue paying your mortgage as agreed and until maturity. For most of us, that is not a possibility. It’s often not a matter of whether or not we will default but when we have to default.
Since it takes at least 24 months to return our credit to pre-default levels, the longer we delay the decision to default the longer it will take to return to “good credit” status.
No. We recommend that homeowners continue to pay their HOA or condo dues even when in default on their mortgage. This assumes that the homeowner can financially afford the payment and it’s a choice, not a struggle.
Nonpayment affects your neighbors. Homeowner and condo associations run on a strict and limited budget. When they don’t receive payments, it has a direct and immediate impact on their bottom line and trickles down to your neighbors. It can affect property values, benefits and services and quality of life for neighbors. I wouldn’t want a neighbor to do that to me and I wouldn’t want to do it to a neighbor, if possible.
In addition, many associations are now fighting back and seeking personal judgments against the homeowners for non-payment.
If the homeowner can no longer afford the payment, that becomes the most important consideration and they should not pay. A homeowner should not worsen their already tenuous financial position just to make the payment for HOA or condo dues. But, if they have a choice, we ask them to choose to pay the dues.
In our CHRE short sale program, we don't put a lot of stock in hardship. Everyone has a hardship. Not long ago, hardship was an important consideration in gaining lender approval for a short sale. While it's still considered a benchmark that must be addressed, it's just a benchmark. In the hands of the right short sale negotiator, it's just one more box to check off to confirm that all requirements have been satisfactorily provided to the lender.
Our position with lien holders is that the homeowner is NOT paying their mortgage and nothing that happens during the negotiations will change that. There is not going to be a miraculous epiphany on behalf of the seller where he asks forgiveness, brings his loan current and pays on time through maturity of the loan. The lien holder can either accept a full price, non-contingent, As-Is offer or they can foreclose. Remember, we can't do more than offer the best contract that the market can offer.
I'm not intending to make the hardship sound insignificant. You can't write a hardship letter saying you don't feel like paying your mortgage anymore. But you are also not a prisoner of your home. If you want to, or need to, move and are upside down by $100K and don't have $100K, you have a hardship.
There is no better hardship than, "I'm moving. I'd love to stay but I can't. I'd love to pay, but I can't. I don't have $100K so I'm asking for you to accept my short sale offer." There doesn’t need to be an explanation for why you are moving (although there can be). A lender can't force you to stay in your home just to pay their mortgage, especially when everyone around you is abandoning their home. An informed lender knows that they'll have little choice but to accept the short sale if the purchase offer is a market price offer.
It is highly unlikely that you will lose your security clearance or employment because of a short sale. I want you to truly understand your unique circumstances so that you can approach your direct supervisor or human resources department for help AND FOR APPROVAL TO COMPLETE A SHORT SALE while stopping your mortgage payments.
You probably have a tendency to believe that your problems are unique to you which probably causes you to feel isolated. I want you to remember that millions of people just like you are dealing with the issue of being unable to continue paying for their home every day.
It’s such a common phenomenon that most HR departments, even at the highest level of government, have a standing policy for dealing with short sales.
There are many factors that were considered to determine your eligibility for obtaining, or retaining, a security clearance or specialized employment. Credit is only one of the factors used. Let’s understand why credit might be a factor for consideration in such matters.
Employers will want to review a credit REPORT, not a credit SCORE. A credit report is a combination of your credit score and your credit history. Your credit history tells a story of how you have used your credit in your lifetime. Have you exercised good judgment and decision making in your personal use and management of credit? You probably have.
A historical review of credit also helps employers determine if you are vulnerable to influence from third party sources (such as bribery and extortion) because of poor financial judgment. Are you vulnerable to bribery or extortion? You might be if you don’t get rid of your upside down mortgage.
Remember that even if your credit score drops, your credit history will remain intact but it will now include a negative event THAT YOU DIDN’T CAUSE.
Most personnel and human resource departments realize the short sales are an everyday part of our life in this economy. They know that you didn’t cause your circumstances and that by getting rid of the mortgage debt that acts like a financial anchor around your neck, you are exercising good financial judgment and decision making (because failure to act would make you vulnerable to third party influence - such as bribery and extortion).
Also, I don’t know if this describes you but most people face the prospect of a short sale BECAUSE THEY DON’T HAVE ANY CHOICE. They are unable to continue paying their mortgage long term. They need to sell but they owe more than the home is worth and don’t have the financial resources to pay the deficiency. Regardless of whether their supervisors deem it permissible or not, they will do a short sale….which will affect their credit score even if they didn’t stop paying their mortgage. But failure to stop paying their mortgage will likely disqualify them from being approved for a short sale. It’s a Catch 22.
If I’m describing you, I recommend that you actually try to apply for a modification. I don’t recommend this very often. Applying for a modification will demonstrate to your employer/supervisor that you did everything that was reasonably possible to avoid a short sale or mortgage default. Of course, you won’t receive a modification that will cure your mortgage burdens but it’s the process of demonstrating that you tried that matters.
Stop and think about your circumstances. Do you really think that if your employer knew about your financial struggles that they would say, “That’s tough. Find a way to work it out”? Of course they wouldn’t. Would you want to continue working with/for them if they did say that?
Please don’t take my word for it. This is such a critical and sensitive issue but you also don’t have to guess, wonder or worry. The answer can easily be determined by simply asking the question.
Approach your supervisor or personnel department (immediately) to share the reality of your circumstances and ask for guidance. You will likely learn that you weren’t the first to ask (and won’t be the last). They will likely assure you that a short sale will not jeopardize your security clearance or continued employment. It’s that simple.
If it turns out that I’m wrong, and the supervisor refuses to consider allowing you to do a short sale, what are you going to do? You can’t keep making your payments. Maybe you can in the short term but you can’t do it forever. If you’re upside down by 30% or more, you have a short sale in your future. I haven’t encountered any employer that would act, or react, so harshly given the unique circumstances.
I have shared this advice with hundreds of homeowners with security clearance, many with the highest possible clearance, and not one has ever come back to me and told me that their request was denied.
However, in order for this approach to work, you must REALLY believe that you didn’t cause the financial turmoil that turned your home value upside down so that you can’t sell your home or afford your mortgage. If you believe that you are somehow personally responsible for dropping property values by 30, 40 or 50%, then you will not effectively convince your employer (or anyone) that you should not be held accountable for exercising poor judgment and decision making. And if you believe that you are responsible for dropping my/our property values, you are advised to seek therapy immediately because you have a denial issue!
Since this is a difficult issue which may be hard to reconcile, here are the critical points you should include when discussing your circumstances with a supervisor or personnel department. It’s presented in letter form just in case you can’t bring yourself to have this discussion in person:
To Whom It May Concern:
Because of an unforeseen hardship (see attached hardship letter) I am unable to continue paying my mortgage under the current terms.
My lender has been unwilling, or unable, to modify the terms to an affordable or manageable level.
Due to a significant decline in home values I owe more money to my mortgage lender(s) than my home is worth.
I am unable to stay in my home under the current mortgage terms and am unable to sell my home for the full value of the mortgage debt.
My only known option is to proceed with a short sale (where my lenders agree to accept less money than they are owed in exchange for releasing their lien on the property).
A short sale will have a temporary negative impact on my credit score. In addition, it is necessary for me to stop paying my mortgage in order to qualify for the short sale approval (which may have an additional short term negative impact on my credit score).
I’m aware that my credit profile is a consideration in approving/maintaining my security clearance.
Please understand that my overall credit history reflects excellent performance, choices, judgment and behavior.
My credit is very important to me, as is my current job/position and my security clearance.
While I accept the credit consequence of a short sale, I also understand that I was not the cause of the economic circumstances creating my hardship or loss in property value.
My credit score will improve quickly but my overall credit history remains the best indicator of my (continued) eligibility for a security clearance.
I ask that you (look favorably on my application for a security clearance or government contract) or (do not revoke my current security clearance or government contract) for all the reasons previously discussed.
I will gladly consider any other alternatives or options that might be available provided they can cure my current mortgage burden and allow me to keep my current employment and security clearance.
Thank you for your time and consideration. I am happy to provide any additional information upon your request and look forward to your favorable response.
BPO is lender lingo for Broker's Price Opinion. Lenders hire real estate agents/brokers to physically inspect a distressed property (either in short sale or foreclosure) and prepare an opinion of the property value. Unfortunately, the Brokers hired to prepare these opinions are not paid much for this service and typically are not experts in the area where the home is located.
In addition, brokers often have a conflict of interest because they perform the BPO’s at a very low cost in order to develop a favored relationship with the bank/lien holder for purposes of being rewarded bank owned listing. As a result, they often overvalue the BPO in order to demonstrate “real value” for the bank instead of citing true, real time market value.
Our short sale system requires the buyer to provide an appraisal from their lender because this “arm’s length, third party” valuation is the only true measure of current market value. In negotiating short sales, banks/lien holders often rely too heavily on a poorly prepared BPO. Having the buyer’s lender appraisal is the best response to a bank/lien holder who has an unrealistic expectation of the current property value.