Q: I am one of the millions who are in a world of hurt. I have been widowed twice, have lost two children, have survived cancer and have no family. In three years, I went from having $50,000 in savings, to wiping out my 401(k), to no longer being able to make my mortgage payment.
The bureaus state that my credit score is between 740 and 748. My home has an $87,000 balance, and townhouses in my complex are selling in anywhere from six to nine months at anywhere from $169,000 to $175,000.
My goal is to use whatever equity I receive and purchase a mobile home on Cape Cod with a small loan to take advantage of the tax break. At 70 years old, I want to spend my last decade planting a flower garden and collecting seashells.
Since I can’t make my mortgage payments, my bank is offering the following options: 1. special forbearance/moratorium that would suspend my payments for three months or reduce them — reduction is not a viable option, as I am living on my Social Security. After the three months, I would need to bring the loan current OR qualify for another forbearance. The idea of having to qualify for the second forbearance scares me.
Option 2 is a short sale at less than market value, but that would leave me homeless at 70 years old. Option 3 is a deed-in-lieu of foreclosure, which I am not ready to do. Option 4 is to get a HUD loan, but I’m not even sure how to begin to find out if I am HUD-eligible? –Tricia
A: In hindsight, the last few years of your family life, health and the unraveling of your finances do look very bleak.
I feel the media and market analysts often underestimate the millions of retirement-aged Americans who have been cast into unstable housing situations — due to no fault of their own — because of the massive decline in value of their stock market retirement accounts. However, from what you’ve told me, I don’t think your future is nearly as bleak. Hindsight will be much less helpful to you than a consideration of the options available to you, so let’s do that instead.
You have two very, very valuable items that most other Americans who can’t make their mortgage payment do not, and I want you to focus on them. The first? Equity — by my math, you should have roughly $80,000 in equity in your home. The second thing you have, that most distressed homeowners crave, are bank-approved options.
Your home no longer works for your life — so divesting of it, while emotionally exhausting, may not actually be a bad thing. You’ve said that your life vision includes gardening and living in a mobile home on Cape Cod — sounds like a nice vision to me! You are now in a position to manifest that vision, and your bank seems to be willing to give you the time you need to do that.
First things first: Put your home up for sale, immediately. It may normally take six to nine months to sell, but if you spruce the place up and stage it for sale (consult with your agent on how to best do these things), and price it home slightly below the most recent sale of a similar home in your subdivision, you might be surprised at how quickly you can get it off the market.
At the same time, start looking for your mobile home on the Cape. Mobile homes can be quite difficult to sell, so you might be able to get someone to sell you theirs contingent on the sale of your home — that just means that you don’t actually have to close the deal until you get your home sold. You might also be a good candidate for a lease-option on a mobile home, so that you could move in quickly if your home sells faster than expected.
The ideal scenario would be for you to buy your mobile home for less than your home equity. I did a quick Internet search and found mobile homes in that area ranging from $20,000 to $80,00 — with many in the $40,000 range. That would be a nice range for you to stay in; once you sell your home, including paying any missed payments, transfer taxes, agent commissions and closing costs, you should still be able to comfortably pay cash for a $40,000 or $50,000 mobile home and still have some cash remaining from the sale of your townhome.
In terms of the options being offered by your bank, let’s take them in turn, starting with the ones I’d suggest you consider ruling out.
Option 2 — the short sale — just isn’t sensible. A short sale is selling your home for less than you owe — you owe far below market value, and could very likely sell your home at a slight discount from market value and still make tens of thousands of dollars on it without venturing down the short-sale path. So that’s out, assuming your estimate of your home’s value is accurate.
Option 3 — the deed-in-lieu — is only an option for those who are near foreclosure, and have had their home on the market for sale for at least 90 days, with no success. Your home has significant equity that a deed-in-lieu would throw away so you are correct that this would be extremely premature.
Option 4 — the HUD loan — would be a better option if you were interested in staying in your home for the long term. The fact is, you’re not. You’d like a different living situation and have the home equity to make it happen. Also, you’re not in a position where a different loan will do much, if anything, to make you able to afford to make payments over the long term, which you would need to do with a new type of loan. I know you think you are planning for the last decade of your life, but you could end up living another 20, 30 or 40 years!
Use your home equity to create a sustainable, long-term housing solution that would require no payments, so that you can use your Social Security money to simply cover food and other essentials.
For that reason, I think option 1 — the forbearance — is a great one. If you put your home on the market, at a very good price, you should be able to get it sold fairly quickly. Even if it takes longer than three months, the bank will be more likely to grant a second forbearance if they see you are aggressively trying to sell it.
And even if you do not get a second forbearance, after the forbearance, your bank would still have to wait the legally required period — usually six months — to foreclose on your home. And many banks are taking as long as 16-22 months with no payments before they foreclose on homes.
So, if you take a three-month forbearance, you will give yourself more like eight or nine months to sell your home before the bank could take it.
Again, I’d suggest you put your home on the market with no further ado, and immediately begin looking for your next home. Make sure you price your home so that buyers would get out in the cold weather to come see such a great deal. Also, consult with a local real estate broker or agent, a local tax professional and even a local real estate attorney who can look at the specifics of your situation before you make a final decision on any of the options your bank is offering.