REAL ESTATE MATTERS For release 12/07/13
BC-glink 12/07 TMS Original
REAL ESTATE MATTERS For release 12/07/13
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Better to give up underwater home or struggle on?
Tribune Content Agency
By Ilyce Glink and Samuel J. Tamkin
Q: I bought a home in Florida in 2005 and paid $181,000. I put $18,000 down. I was immediately offered a second mortgage to pay for some remodeling I wanted to do, so I took it. I refinanced and put another $10,000 down, leaving me pretty broke.
When the real estate market collapsed in South Florida, my home value fell to about $90,000. During the recession, my job was cut to two days per week and I called my lender for help.
I was told (and I listened) that I needed to be three months behind for help. Then the run around began. You know the rest of the story -- I wound up in foreclosure. My loan was sold to a second lender, and I was told by them that I could get a refinance but not receive a reduction in the loan amount.
I have returned to work full time, but it's not looking good for me. I've been told I am in a flood zone and owe $198,000 on a home that's worth $100,000.
I am fighting to save my home. Recently, my lender refused my temporary payment plan and I have to start over again. What advice would you give me? I am thinking of just giving up.
A: We continue to hear stories like yours from our readers and wonder when the effects of the Great Recession will stop hurting homeowners. It was a shame that lenders were unwilling to help homeowners without telling them that they must be in default on their loans to get loan modifications.
The government encouraged loan modification programs that ultimately seemed to be more window dressing than real help for homeowners. While millions have now, six years later, been helped by loan modification programs and the Home Affordable Refinance Program (HARP), millions more have lost their homes and been financially destroyed. And with the current high unemployment rate, coupled with the low employment participation rate, the hurt goes on.
We don't have great advice for you, but rather some guidance. You have to take a bird's eye view of your situation and make a decision based on what you see. From our vantage point, you've told us that you have been in financial trouble now for a number of years. Your home debt is double what your home is worth and it doesn't look like that ratio is changing any time soon. Due to recent increases in the flood insurance premiums (with the worst yet to come), your costs have probably skyrocketed.
While you can focus on what the lenders can do for you, you have to look at these programs (both private and government-run) and decide whether they will have a positive effect on your situation today, but also during the next year or two and in the long run. If your housing costs are reduced but are still too high for your income, then you must evaluate other options.
Those options may include selling the home in a short sale, giving the home over to the lender in a deed-in-lieu transaction or losing the home to foreclosure. These are all tough choices with long-term financial and tax implications that must be carefully considered.
We don't encourage foreclosure. A homeowner may do better in both the short and long term by trying to sell the home in a short sale or asking the lender to accept the deed in lieu of taking it back through foreclosure.
If you are able to obtain a loan modification that allows you to pay your housing expenses -- and not at the expense of your medical care, food, education and other necessary living expenses -- you should consider working with the lender, staying in the home and trying to work things out. If not, you should figure out how you're going to leave, and when. We must stress: Only you can make this decision.
Your obvious options are to work as hard as you can to get your loan expenses reduced along with your other living expenses and hope that in a couple of years your income is in balance with your expenses. Perhaps by then home values might have increased and come closer to what you have into the home.
On the other hand, if you know the home's value won't rise enough over the next 10 years to cover what you have into the home, and if your loan and housing expenses will continue to be way higher than you should have, the financial burden may just be too great.
In that case, you might be better off finding less expensive housing that will allow you to reduce your financial burden. While your credit history and credit score will be hurt for some time to come, that option may be better.
As we said, this is a tough choice. Let us know what you decide to do.
(Ilyce Glink is the creator of an 18-part webinar and ebook series called "The Intentional Investor: How to be wildly successful in real estate," as well as the author of many books on real estate. She also hosts the "Real Estate Minute," on her YouTube.com/expertrealestatetips channel. If you have questions, you can call her radio show toll-free (800-972-8255) any Sunday, from 11a-1p EST. Contact Ilyce and Sam through her website, www.thinkglink.com.)
(c) 2013 ILYCE R. GLINK AND SAMUEL J. TAMKIN. DISTRIBUTED BY TRIBUNE CONTENT AGENCY, LLC.