Homeowners With Financial Hardship

Counseling recipients should not pay for these services. However, housing counseling agencies are permitted to charge reasonable and customary fees for other forms of housing counseling and education services, including pre-purchase, reverse mortgage, rental, and non-delinquency post-purchase counseling services, provided certain conditions are met:

  

If the property value is less than the loan balance, but otherwise under no pressure to sell, keeping the property can be the best solution. Ask family or other resources to carry you through your financial stress. Because of the lack of equity, a refinance may not be possible, but be aware of any special “hardship refinance” programs a particular lender may offer. These change frequently. If you must move, could you rent the property (even at a negative cash flow) and sell it later in a better market.

 

If you need to move, don't leave your home vacant, rent out your home instead. There is a great demand of potential tenants looking for rentals these days and the lack of available home is driving up the monthly rental fees homeowners are receiving. 

This might not sound appealing, but it can be a good choice for sellers who are in a financial position to pay a deficiency from other liquid assets.  This approach avoids the credit damage that even a successful short sale will cause.  An alternative in some circumstances is for the seller to agree to convert any deficiency into a personal note, or a note on another property owned by the seller. Sellers are advised to consult appropriate legal and tax professionals before considering such a note.

Lenders are increasingly interested in helping financially distressed homeowners stay in their homes. In some cases, they have been willing to reduce or roll back interest rates, or reduce the allowable payment, to help sellers avoid short sales and foreclosures. Homeowner should consult an attorney if this is the option they choose. Note that new laws and policies are emerging.

 

If the seller owes more money than the property is worth, is unable to make payments, and is likely to lose the property in foreclosure in the near future, offering to trade the property to the lender in exchange for the cancellation of the note might make sense.  This approach is more likely to be successful in states with very long foreclosure timelines.  The lender can obtain the property much sooner and may feel that the mitigation of loss is worth the cancellation of the note.  Like workouts, this is a contract negotiation, and should be undertaken only after consulting with an attorney.

 

Be aware that, on occasion, lenders have “approved” short sales that included personal notes for the deficiency, and unwitting sellers have signed the notes without a full understanding of the consequences. Note that the lender is a principal in the transaction. The agent represents the seller, not the lender. In a short sale, the offer is negotiated with the seller, just as in a traditional sale. The offer is then submitted to the lender, not for an “acceptance” but for the terms and net proceeds. 

If you are upside down in your mortgage, and do not see a way out anytime soon, it’s time to take action. Losing your home to foreclosure has serious consequences. Don’t make the wrong decision.