What to do when home sellers are upside down

Short Sale is just one option

Just the other day, a gentleman walked into my office to ask some questions about loan modification. While I am generally not in the loan mod biz, my experience working with short sales and speaking with distressed borrowers and stressed agents has provided me with lots of helpful info on the loan modification process. The man had been successful in obtaining a HAMP loan modification from his first lien holder. Kudos to him! That, in itself, is a major accomplishment, but he was now a bit stymied about what to do with his junior lien.

This homeowner was seriously upside down on his mortgages (like $200,000 underwater), and was unaware of his options. Short sale agents need to have the background and tools in order to be able to review options with any borrower who is underwater or having trouble making ends meet.

Know Your Options

1. Loan Modification. There are several options for modifying the terms of the note, including the Treasury HAMP program, which begins with a 3-month trial period. More information on this program can be found of the Treasury website. Most lenders also have loan modification programs for those that do not qualify for HAMP.
2. Short Sale. The prospect of selling your home for market value, despite the fact that the loan balance(s) may be more than the value of the property. Agents need to be familiar with the short sale negotiation process as well as the various short sale incentive programs (including HAFA and some other juicy incentives) available to short sale sellers.
3. Refinance. Nowadays there is even a refinance program (HARP 2.0) available for some responsible borrowers who are current on their mortgage, but owe more on their mortgage than the property is worth. In fact, Obama recently proposed opening this program to additional responsible borrowers.
4. Deed-in-lieu of Foreclosure. This is essentially where the seller strikes a deal with the lender to return the home to the lender. (Many terms and conditions apply and this is not nearly as easy as locking the door and mailing the keys to the bank.)
5. Bankruptcy. While this is not my area of expertise, underwater borrowers can speak with an attorney about their options with respect to bankruptcy and homeownership.

While the gentleman who stopped by my office just wanted to brainstorm about how to handle a loan modification with his second lien holder, he got a lot of new ideas about other options that may be available to him if he needs or wants to sell his property. And, when he left, I thought I caught a slight scent of short sale in the air. But, we will have to see what comes. Nevertheless, it does help to have all the tools at your disposal.