There is so much internet chatter going on about strategic defaults since 60 minutes aired and had a segment on homeowners just walking away from their homes.
Is it tempting for you to just leave the keys on the table and get out from underwater? Does the option of renting for the next 4 to 5 years look pretty appealing to you right now?
- Have you discussed your situation open and honestly with your real estate attorney who really understands the mortgage default law in your state?
- Have you discussed the ramifications of your decision to walk away with your certified accountant who understands the IRS code regarding foreclosures?
- Have you discussed your goals of what you want to accomplish with your strategic default with your Realtor® who actually closes on short sales that are strategic defaults?
If you have not looked at all your options- then please explore them before making a fast decision just because everyone else is doing it or just because you may have been sold some bad information.
A strategic short sale may be an option for you.
You may be able to negotiate down the balance you owe to a very small amount on which you can then execute a small promissory note for. Some homeowners have been able to get strategic defaults approved by offering pennies on the dollar of what they owed.
Strategic short sales on first loans are most often easy to get negotiated to approval.
HELOCS are another story- that is when you took out a home equity line of credit after you bought your house and then you used that money to buy cars or trips or pay for college tuition or to buy other properties. HELOCs are held in secondary position and there is not much benefit for them to foreclose on you.
So they most often will charge your loan off after you don't make payments and then sell that debt to collection agencies who will seek to collect from you for a very long time.
Different states have different rules but in general the credit reporting agencies will leave that charged off debt on your credit report for 7 to 10 years. But the kicker is that when the time is near to get it released the collection agency sells the debt to another collection agency who then starts the process all over again.
How long can you hide from them? What state do you live in and how do your credit laws protect your assets or not in your state? Something to think about.
But you can negotiate a settlement with your HELOC and then that will wipe out the major part and the only part you will be now paying on and be liable for is the part you negotiated the debt down to. You are going to be asked to do that very same thing when the collection agency takes you to court to get a judgment against you. Why not take care of it now to avoid all of that hassle and stress later on down the road?
If you do a short sale and you are late on your payments only because your lender told you to be late in order to complete your short sale and you are doing the short sale because you are moving to another area for a job- FHA may allow you to buy a home right away.
Most homeowners who go into foreclosure will be able to buy another home in about 5 to 7 years but FHA will not approve your loan until you take care of your judgments. Have you thought about that?
If you do a short sale you can get an FHA loan or a Fannie Mae loan within about 2 to 3 years conservatively speaking. There are a lot of other differences in getting a future home loan after a foreclosure and after a short sale. You may want to visit the Fannie Mae website to find out more.
Nothing in this article is to be construed as legal advice. Please seek the advice of your attorney. We are not attorneys and we are not giving you legal advice.
For more information about selling your home as a Florida short sale click here.
Foreclosure Is NOT An Option! Call Nestor and Katerina Gasset today at 561-753-0135 for a confidential interview regarding your options.
Don't Delay! Don't Wait Until The Sheriff Is Knocking On Your Door! Pick up your phone and call us to see if you can avoid foreclosure.
To view Welington Florida Homes For Sale Click here. We know Wellington Florida Real Estate and Wellington Florida Short Sales and will help you get your home Sold if you need to Sell your home and help you buy your home in Palm Beach County Florida: Call us today.
Copyright © By Katerina Gasset 2010 * All Rights Reserved*Strategic Defaults-Homeowners! Choose Strategic Short Sale Instead of Walking Away!*
Nestor Gasset and Katerina Gasset- Realtors®, CIPS, ABR, SFR, GRI, REOS
Katerina This is a situation that should be carefully considered as it will impact your future in a big way. Sstrategic short sale seem to be a better choice than just walking away,
I saw the article on 60 Minutes last night on the short sales. It made me sad and mad. How can people just walk away? It is in our best interests as realtors and citizens to help these people become aware of the short sale. Yes, the charming young man they interviewed declared that the bank "wouldn't work with him"; however, if he had a knowledgable realtor, he might have been able to save his credit, his conscience and his and his family's secuity down the road.
Great post.
You may not be attorneys, but that's the best practicle advice I've seen in a long time.
The trouble with shows like 60 Minutes is that viewers don't understand that state laws can vary greatly, and what they're seeing on screen may be the exact opposite of how it works in their state. Always, always consult a local professional who knows all of the specifics to that area.
Suzanne- I don't watch much TV and don't watch 60 minutes, so I am wondering, did they ever say one thing about speaking to your Realtor® about your options as a homeowner?
John- Even worse, if it is on TV; most people believe it as gospel. They need to question advice given in such a general statement. Katerina
Short sales are an option- but they still need a great deal of reform. 60 minutes should do a follow up with this as the topic.
This is a fantastic post. The ramifications of "walking away" may not be that cut and fry. You have pointed out some extremely important questions that need to be answered prior to just "walking away".
Sound practical advice..its not so easy to put the keys on the table and walk....it will haunt you for years..better to first take the time to explore every possibility!
The "walk away homeowner". After yesterdays segment the percentages will rise. Count on it.
Great advice; The regulations are complex. Borrowers need to consider ALL the facts before making a decision regarding their particular situation.
Steve
I think too many people listen to friends and others for advice who more than likely don't know very much about the laws or lasting impacts. Better to do your home work before taking the plunge.
I just posted on this as well. I think that there's a moral play for some folks who can afford the payments, but have made a business decision to walk away. For those who can afford it, I don't recommend this if they can afford it....
What happens when ALL our credit scores are 540 and below? HA HA HA All these things can affect credit ratings: short sales, foreclosure, bankruptcy, loan modifications. Sometimes, for a lot of people, it really is, and will be, the less of two evils.
As others have indicated, there are widely varying state laws on the subject. The 60 Minutes show pointed out that there are a number of states that allow you to just up-and-leave without any further recourse. But it is critical that all homeowners contemplating this fully understand their individual situation and how local laws may impact their decisions.
In my state I've heard of junior lien 'stripping' as part of a structured bankruptcy. This will allow a homeowner to completely remove junior liens if they are underwater. Yet another situation that few people except the lawyers know about - and even then most probably don't know about them....
Great information Katerina. 60 minutes was quite misleading for states where lenders have the ability to seek deficiency's from foreclosures.
We are a deficiency state in Michigan.
I love your advice will reblog later for my sellers in Ann Arbor. Great advice, seek the advice of an attorney and your CPA.
Great advice as usual Katerina. How does a TV program get away with dishing out such information? I am sure there must have been a tiny disclaimer somewhere that most viewers will have missed.
BTW - Working on more and better buttons!
Carla- with the exception of buying a home, lowering all the credit scores may not be a bad thing, :) most all of us at one time or another lived beyond our means. Credit makes slaves out of those who owe and the material things lose their luster quite rapidly and only gain dust as people struggle to keep up with the jones and their creditors. If everyone's scores go that low, they won't be able to use most of their credit cards and be forced to actually live within their means. Pay as you go is the only way to go.
People need to be informed and need their options to be properly explained to them.
Great Post as usual!
I also posted about the 60 Minutes Foreclosure Story. Check it out if you like: http://activerain.com/blogsview/1637564/60-minutes-foreclosure-story-what-were-you-thinking-
This information is so important. Homeowners need to be well informed as they make a decision about something such as strategic default, and they need to speak to professionals who understand the ramifications it will likely have for them.
Thank you, and I have reblogged.
Good advice. People should be informed of there options. Sad to see people just walk away!
One of the many reasons our economy is where it is today!
Thanks for your post!
Tom
Hi Katerina, Homeowners need to have options. Walking away does not benefit them whatsoever.
Katerina - Great post, I believe the people who decide to walk away don't realize exactly what they are in for. Many times when I explain to them the process they always state that "I did not know that" and they change their game plan. I did not watch 60 minutes but am curious what they reported. I will try to watch online or something so I am prepared to discuss with my customers. Thanks for sharing.
Very interesting the differences in the various states. This was very informative for me. I will be reblogging this, as well as reading it again. I'm not very bright, I need to let it sink in. For those that have the means and yet still walk away, ABSOLUTELY RIDICULOUS.
Thank you
Katerina - Well put and bluntly said. Your point about paying pennies on the dollar NOW versus the full amount and judgments later is major.
i'd be very causious in stating what you may be able to do in 2-3 or 5-7 years after a foreclosure. if we've learned anything from our experiences, it's that ALL of these guidelines are subject to change, and just because that is the guideline currently does not mean that that's what the guideline will be in the future. the fact is that if that is when you want to buy again you will be subject to the guidelines, as they are, at that time.
what will they be?
don't know.
Short sales, especially with a single loan, seem like the obvious choice for most sellers.
I am so glad to see you say what we all need to be saying which is...that attornies and tax advisors need to be consulted as well! The problems are too complex, there is not a one size fits all solution and each person needs to have all the information before they choose a path and create a strategy. As I see it, this is our only way out of this mess.
Then we must educate these same folks on how to recover their credit so that they can come back stronger and wiser and get our country back on its feet sooner and more fiscally sound.
Chase just put a warning to their investors in their SEC filing that homeowners may strategically default. What do they know that the public doesn't know yet? 27% of their loans are underwater and rising. That doesn't even cover the junk they acquired from Wamu. We are in a mess for a looooonnnng time.
Homeowners need wise counsel to weigh all their options before taking action.
I missed the show, great follow up though. I will reblog to share with my sellers as well. Yes, always speak with an attorney and accountant in your state.
Jay- I used the word, 'MAY'- that is my disclaimer along with the statement that they need to consult with their QUALIFIED attorney. Yes, the guidelines are subject to change, good thing our articles and posts are date stamped :) Katerina
I wish I would have saw this 60 minutes eppisode. I am certain that many people will not understand that laws very by state and the huge ramifications that can come with walking.
Katerina, this post was so informative that I just re-blogged it! You made so many points that are well worth considering for any homeowner who is considering a strategic default. Thank you!
Katerina, good post! So many people go into short sale or foreclosure mode totally uninformed as to the ramifications.
It sure is a mess. Not having been faced with this I can't honestly say what I'd do......
Patricia
Excellent reading. Unfortunately, the public and homeowners are being bombarded with all kinds of conflicting information, as well as disinformation.
Along with the 60 Minutes segment on Strategic Default, Roger Lowenstein, a New York Time Magazine contributor, wrote an article for the magazine that was published on January 10, 2010 titled "Walk Away From Your Mortgage!".
I do not know how many subscribers the NY Times magazine has, but you can bet millions of people have read this article.
Until there is consensus throughout our society on what should be done and how to handle the current housing/foreclosure/financial crisis - mass confusion will continue at every level. Foreclosures have moved from a homeowner/bank problem to a social problem...
Katerina, I don't recall them mentioning to speak to their REALTOR(R). They do reference trying to talk to the bank about lowering their payments. The problem in these individuals' cases is that they *can* still make payments, *don't* have hardships, and *have* other assets - they just don't think it makes financial sense to keep paying a mortgage on a property that has lost so much value -- even though they can do so, so they may not qualify to short...
Katerina. Funny how 60 minutes just got around to reporting on this. We've been talking about strategic defaults on AR for several years now.
Startegic defaults are certainly a viable solution for many folks. And walking away has it's advanatges for some as well. Especially those that may not be worried about their credit or have a low threshold for stress. Of course all we can do is give them the pros and cons and them they have to decide what will work best for them.
Great post. The young man on 60 Minutes did not have a hardship, and said that they could continue making their payments. I suppose there have been some short sales without a hardship, but it definitely makes it more difficult.
I have noticed that when it comes to real estate, 60 Minutes is not the one to follow.
Bob- We have not found that to be the case. In fact, we have closed every single one of our investor owned short sales and every single one of our affluent strategic short sales. We love working in the luxury market and the banks want to get those off their books also. Katerina
Tamara- I don't watch 60 minutes nor do I believe anything any more on the news so that is why I go and do my own research:)
Katerina and Nestor ~ I totally agree with you. Unfortunately someone very close to me lost their home to foreclosure rather than selling it short sale. I'm sorry to say that they did not ask for my advice.
Sybil- I am very sorry that they did not talk to you. This is very sad, but it is also a lot of bad and wrong information getting spread everywhere. It does not hurt to try to do a short sale compared to a foreclosure. Katerina
There is so much misinformation going around about short sales. The best advice I can give is consult an attorney that specializes in the field as well as a Realtor that has experience. Different states have different laws governing the practice.
Great post. And when a homeower performs a strategic short sale, they can also buy ALOT of time in the property before they have to sell it also.
There are some many views and ideas for a strong discussion about this topic. Some home owners are not candidates for a short sale and the next best thing is to walk away but this is a very complex issues. Exactly what impact it will have is still to be seen.
Hi Katerina:
I guess many of us saw that 60 Minutes episode....
Great information and advice you've shared here (as always).
hmm I missed that but have been reading about it all over the place. Really crazy!
This is a lot of information and has a things for a seller to have to make an intelligent decision. Shorts sales are certainly the main stay right now and this is a good read.