I got a call from a friend, who I will call Jane, the other day. After owning a home for many years, she was laid off a few years back just after refinancing her property for some remodeling. Since Jane has now been out of work for over three years, this money has now come in handy.
Jane told me she had received a Notice of Default on her door and the date was 30 days away. We told her we needed to get started right away marketing her property to attract an offer for the bank. As we discussed possible options, she told me she was so discouraged that she thought might let her home go to foreclosure.
My response was that since there is no equity remaining in the home due to the outstanding loan amount, that foreclosure would prevent any proceeds to be paid to Jane when the property sold. The Market Cycle changed at the end of 2006 catching many home owners by surprise and leaving them without an easy exit plan. If Jane should chose this route of letting the bank take the property back and selling it on the Courthouse steps at a Trustee sale, her credit would be impacted negatively for approximately 10 years. Instead we discussed the possibility of a brighter future and how having good credit available could benefit her future.
We then talked about a loan modification and short sale possibilities. Since Jane is not working I shared with her the response I have gotten from lenders that, given her situation, a short sale is more likely to be the current lenders choice. I explained that most lenders save money by selling homes short rather than going forward with a foreclosure. When a home is vacant it is more likely to be vandalized and other maintenance items become an issue. I also shared with her that for a short sale the lender requires that many financial documents be supplied by the seller and that when the lenders reviewed her situation and saw no documented income to pay back a loan modification, the lender would not likely recommend a loan modification but go directly to a short sale option.
After our talk Jane felt that the short sale was the way to go. Knowing exactly when the home would close would give her a graceful exit, giving her time to plan where she would live while living in the home as long as possible.
When you or your loved ones have questions about their options, contact a knowledgeable professional Realtor for guidance and more information about what your actions can create for your future.
Broker and Past President to the Santa Barbara Association of Realtors and Multiple Listing Service