Selling Short
For those that have been waiting to see evidence of the real estate bubble bust, you won’t be surprised to hear some of the stories being told by Northern Virginia homeowners. They are coming up short at closing because they are being forced to sell their homes for less than what they owe on them.
A recent Washington Post article referenced numerous scenarios where sellers in and around the DC area have gone to the closing table still owing the bank as much as $100,000. These “short sales” are the result of would-be homeowners purchasing homes at the very maximum of their payment threshold with little-to-no money down. Compounded by the plethora of interest-only loan programs in recent years and you now have sellers that have no equity in a market where sale prices are stagnant or going down, not up.
Even for those that can sell their homes for what they paid for them, if they haven’t built any equity, they will still be out-of-pocket the costs of sale, which include real estate commissions and closing costs.
With numerous subprime lenders closing their doors and thousands of adjustable rate mortgages approaching their first interest-rate adjustment, lenders and regulators are anxious. The cost of foreclosure to the average lender can be as much as $50k or higher. Refinancing homeowners into more reasonable fixed-rate programs seems a sound solution to the problem, but regulations often prevent lenders and/or mortgage servicing companies from contacting homeowners until they are over 30 days late on their payments. The resulting credit backlash of late mortgage payments on a homeowner’s credit report can create additional issues, especially if s/he is trying to qualify for a conventional loan.
Faced with the prospect of foreclosure, a homeowner may consider selling the best course of action but this only works well if there is at least enough equity in the property to cover the costs of sale. Any homeowner finding him/herself faced with the possibility of being unable to make their monthly mortgage payments due to interest-rate adjustments, illness, divorce or unemployment, should carefully review their mortgage note and terms. S/he should seek the recommendations and advice of a trusted, professional financial advisor. Then homeowners can contact their lender or mortgage servicing company to find out what assistance they can provide to help them keep their home by refinancing their current loan into one with terms that are more workable for them and their budget.