Think twice before giving home up to lender
Many owners fail to grasp consequences of walking away from home
By Ilyce Glink, Wednesday, April 23, 2008.The current housing market malaise has some homeowners up in arms. Sure, if you're trying to sell your home to get out of financial difficulties or because you've already bought another place and carrying two mortgages is killing you financially, I can understand why you're not happy.
What doesn't make much sense to me are the dozens of readers who are ready to hand over their property to the lenders simply because their home doesn't work for them anymore.
Where did these folks get the idea that homes are like disposable consumer goods? When they break, you throw them out. In a matter of minutes, you can get rid of the old and buy something new.
Real estate is what investment advisors call an "illiquid" investment. Historically, it hasn't been that easy to sell a house on a whim. It took planning, patience and a large dose of ibuprofen to get you through the long months or years (sometimes) without an offer.
But in the past 15 years, since the early 1990s, homeowners have been able to sell their homes almost on demand, and certainly within a few weeks or months. An entire generation of real estate agents has never known a time like this one, where homes just sit and sit and sit.
If you can't sell your home, the natural inclination is to find another way to get rid of it. I understand the feeling. If you hate your car and your dealer doesn't give you a good enough offer, you can try another dealer. Eventually, when 10 dealers tell you your car is worth only $17,000 and not the $20,000 you owe on the loan, you'll have to make a decision: cough up $3,000 in cash, buy a new car and roll over what's left of your loan onto the new larger loan (so you're immediately underwater on your new car) or find a way to keep the car for another few years until you've paid off a larger portion of your loan.
Why aren't more homeowners simply doing the same thing with their house? Why complain about how unhappy you are instead of learning how to love the house you bought and now own (at least for another few years)?
After World War II, home builders put up 1,200-square-foot, three-bedroom houses with one bathroom. Soldiers and their wives moved into these suburban residences and raised their families. These homes weren't considered "too small." It's what everyone had.
Today, a 1,200-square-foot condo might contain two bedrooms -- or just one. You might have two bathrooms, or a bath and a half. The typical new home has around 2,400 square feet, central air, an attached two-car garage, several bedrooms and bathrooms, and a built-out attic or basement.
My friend, Fred, has been raising his twins in an older 1,200-square-foot house. The house is too small, he says, and they feel like they're on top of each other all the time. They tried to sell the house, but there wasn't any interest.
So, he and his wife have learned to love what they can about the house, including the neighbors, with whom they've grown quite close. And, the house is affordable. Now, even if they could sell (Fred still thinks the market is too soft in their neighborhood), they probably wouldn't. Their mindset has changed.
Sometimes our brains need a little tweaking. As we keep learning, investments like real estate don't always rise in value. It's difficult to find, fix and flip a house and clear $60,000 in a few months, no matter what you see on television infomercials.
If you turn over your property to your lender, it will have a severely negative impact on your credit history and credit score. If you're foreclosed upon, it may take years before any lender is willing to grant you a mortgage to buy another property.
So if you can figure out a way to love the house you're in, at least until the time you can sell it or rent it, you'll be a lot happier.
To get even more valuable advice from Ilyce, visit her Personal Finance and Real Estate Center.
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Submitted by Diane Cipa on April 23, 2008 - 5:32am.
There's just so much sanity and good advice in this article, my head is spinning. Nice job.
Submitted by Maurice Stewart on April 23, 2008 - 6:27am.
I agree with Ilyce to some degree but I have to draw a parallel with American Idol's contestant, Brooke White who last night after starting her rendition of Sir Andrew Lloyd Weber's song, forgot the words and had to start over. Paula Abdul commented that "On this stage, you have to just go on and not stop" Simon's rebuttal was "How can she go on if she forgot the words?" and I have to side with Simon.
I wish to remind everyone that buying real estate (Primary or Investment) and eventually handing it back to the bank is never an easy decision. It is a deliberate and heart wrenching reality that thousands have to make in an effort to place food on the table, save marriages and protect children. Even for those homes that were purchased with "$0" down, there were still substantial closing and carrying costs until the final decision was made to hand the property back to the bank. May I remind the Author that these costs probably amounted to more than the purchase price of a luxury automobile?
Let us face it, we are in unprecedented difficult times and the failure of an individual to make the payment and eventually hand the property back must not be seen in vulgar terms. They just cannot do it any longer. Look at all the banks and conduits who are themselves failing. It is a systemic problem that has sent shockwaves throughout the local and international financial system. I disagree with the suggestion that you will have a hard time getting approved in the future. While it will not be a walk in the park, if your foreclosure can be explained and linked to this "Great Housing Depression" then I think you will be just fine. After-all banks still need to make loans and after three years of not owning, you are classified as a "First Time Home Buyer". With this designation come very liberal underwriting guidelines and even State grants and subsidies depending on where you live.
Before you hand the house back however, make an attempt to get it on the world stage by listing it on www.sidebunk.com. They have a Youtube Link that is useful and the company will email your property to hundreds of potential lookers and as the homeowner, you can direct all of your contacts to the site to get a Youtube view of your property. For an example look at this link.https://www.sidebunk.com/sbyoutube/sbyoutube.asp?search_query=
Finally call on the experts for assistance in getting the house back to the bank with the least financial impact then they will help you with the restoration process from renting tips to credit rebuilding. They are at www.creditcounselorsofna.com or (800) 330-1616
Oh by the way, if Brooke survives elimination today then you can also survive a foreclosure.
Submitted by Brian Wilson on April 23, 2008 - 12:55pm.
My experience is that most people who look at taking a foreclosure when there are other options are in a situation where their housing cost is breaking them. In the recent past, if your employment situation changed or you realized you bought too much house (and debt) you could sell your home and be made whole even after sales costs.
It's different now because many people cannot afford to maintain their fixed housing expense with the cost of everything else going up and wages prett much staying the same. They also cannot afford to sell, literally.
I work with a lot of clients in this situation and I think it makes a lot more sense to stop "throwing good money after bad" by trying to keep up with a mortgage that is going to foreclose. In many cases it doesn't make sense to even attempt a short sale since most major lenders are uncooperative and unresponsive and it is questionable whether having a "charge off" on your credit has any advantage over having a "foreclosure" on your credit.
I agree with the previous writer that this national downturn will actually advantage homeowners who experience a foreclosure since their is comfort in numbers and the stigma is nearly gone. At the end of the day, most home owners that I work with see the house as just another "thing" and "things" can be replaced.
Brian Wilson
www.zolve.com
Submitted by Kaye Thomas on April 23, 2008 - 8:30pm.
Frankly I'm appalled that so many seem to think it's OK to walk as it "didn't work out".. or better yet it's a "thing and things can be replaced".
The reason it didn't work out is because of the lack of personal responsibility evidenced by the "owners". They bought homes they couldn't afford while persuing lifestyles they could not afford. Now they are just going to dump their homes because the home didn't increase in value the way they thought...Spare me!
These people are children playacting like adults. Adults take responsibility for their actions. Most of the "homeowners" should never have purchased a home as they don't know the first thing about personal responsibility or home ownership.
Lesson one in being an adult... life is not a dress rehersal.. things don't always go exactly as planned. Adults make the best of things and move forward. Children cry about how unfair life is..
Submitted by Richard Dale-Mesaros on April 24, 2008 - 5:04am.
Richard :)
Chief Deal Weaver
www.BlackWidowNetwork.com - STRIKE FAST!
Here's another spin on this issue:
I'm an investor who has worked with dozens of folks who were facing losing their homes. Sure, one or two of these people had gotten in 'over their heads' and it's hard having a great deal of sympathy for them, but what about the cases where a spouse dies, gets a catastrophic illness, is unable to work for any of a number of reasons and now there simply isn't the money to keep up with house payments, especially if the 'significant other' was the main bread winner- this is NOT a case of irresponsibility and you'd be surprised how many people face these issues.
If they've tried selling their house to move on (with or without a Realtor), but it won't sell because they owe too much, then their best bet is to work with an honest investor who can negotiate with their lender and do a short sale (many Realtors aren't prepared to do this because of the hassle), thus allowing them to move on and avoid foreclosure.
Trouble is, many states have now passed legislation that basically stops investors from helping people prior to a foreclosure sale, which is in turn worsening the rate of foreclosures. Add this to the fact that it's harder to file bankruptcy, the banks won't discount much and it's harder to get a new loan and you've got a big problem on your hands, which is where we are now. We have a hard road ahead of us!
Yours with gritty determination,
Richard :)