Your search results

The Four Choices for Distressed Homeowners with Negative Equity

Posted by Greg Diodati on September 7, 2009
0

I recently read a book by attorney Jeff Watson on the Short Sale process.  In it he explains the options distressed homeowners have when facing a foreclosure.  The following is my summary of the options for distress homeowners based on what I have learned from Jeff’s book.

Prior to looking into the options, we must step back and consider how the homeowner came into the position of financial distress.  Of course there are many reasons of financial distress; loss of job, divorce, relocation to name a few.  One that also affects many homeowners is that an Adjustable Rate Mortgage, (ARM), may have reset and the homeowner no longer can afford the new monthly payment based on the current rate.  This may be compounded by any of the above factors of financial distress.  In looking at the distressed homeowner, we must be aware of all the factors leading to the distressed situation and the extreme stress that is occurring.  So what choices does a distressed homeowner have in this situation?

1.  They can live in the home and do nothing, live as a squatter in the property and hope the bank takes a long time to foreclose on the home.  Taking this action will certainly ruin the homeowner’s credit.

2.  The can list the property with a Realtor hoping to get an offer high enough to cover the mortgage and closing costs.  By definition, if the homeowner has negative equity, the property is worth less than the loan.  This option will not work either and the homeowner remains in default with the foreclosure looming.

3.  List the property with a Realtor with the intention of finding a short sale buyer as an end user.  This is a step in the right direction but unfortunately most buyers are not patient enough to wait the 90-120 days to negotiate the short sale with the lender.

4.  Work with a Realtor to find a short sale investor who is committed to working with the homeowner, negotiate with the lender and has the patience to wait the 90-120 days for the process to finalize.

These are the options homeowners face in trying to deal with a default on their property with negative equity.  Realtors should be aware that working with a knowledgeable investor is key in efficiently handling a short sale transaction.  Ultimately, it is the homeowner’s decision as to which path to choose to move forward.

In my opinion, any course of action that lessens the effects of financial distress should be taken.  Although it may be difficult to focus on while going through the stress of a pending foreclosure, it is critical to preserve the homeowner’s credit to the extent possible.  While a Short Sale and the settlement of hundreds of thousands of dollars of debt is something no one wants on their credit report, it is certainly better than a Foreclosure and possible Bankruptcy.

Leave a Reply

Compare Listings