Why is that every RE Broker says not to walk away from a mortgage that I'm nearly 50% underwater, due to enormous downdraft in appreciation of?

Asked by Seadoc, Palm Desert, CA Sun Mar 14, 2010

properties in California? Is it because strategic defaulting could be the only way the 'little guy' can possible change the financial playground and take it from the banks and financial institutions that propped up the lofty real estate prices with bogus appraisals so they could make these ridiculous loans... Now, that the tires are deflated, why not walk away - short sales only work if you have a buyer willing to buy... and most are not yet there, as the tires aren't flat yet...

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Debra B Albe…, Agent, Port St Lucie, FL
Tue Sep 7, 2010
This is just my OPINION. You are hurting your credit and the RE market. Loss of equity is NOT a reason for a short sale. Why are you wanting to move? Can you talk to your lender and modify? Try this out, just for additional information check out http://www.knowyouroptions.com. It is worth getting all the facts before making a move. You should also seek the advise of your Tax professional, and your atty. before making any decisions. Best of luck to you in the future!

Debbie Albert, PA
Coldwell Banker Residential
Web Reference:  http://www.ronanddebbie.net
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Seadoc, Home Seller, Palm Desert, CA
Mon Sep 6, 2010
Thanks all - well just to give you a recap of what has transpired since March 2010 when I initially posed this question. I did attempt a short sale - got a terrific buyer, all cash, at a price that was in excess of what my county appraiser just adjusted for the value of my house for the upcoming tax season. In spite of it all, my second USAA and Freddie Mac would not approve the sale. I had no option but to stop payments and it has been over 4 months now and haven't heard a word - no NOD, no nothing. I tried to do the right thing, but those that got the bailouts, our tax dollars, refused to assist me... so, I say... I'm mad as hell and I'm not going to take it anymore... Frankly, if everyone en mass just dumped their underwater mortgages, we'd hit bottom fast, and we could start moving forward as a nation... Unfortunately, this trickling of mortgage defaults and foreclosures will last at least a decade and with it our nation's worsening malaise...
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Gary Benjamin, Agent, Sarasota, FL
Tue Mar 16, 2010
I understand that there is an attorney by the name of John Tripodi who does this type of work as Real Estate Brokers can not give you legal advice. I would suggest you call him at 941-355-7500 and make an appointment. Believe me there are better alternatives. My suggestion is not to walk away.

Gary Benjamin
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Sara Leicht, Agent, Sarasota, FL
Mon Mar 15, 2010

My advise would be to seek legal council. You need to know all of your options and as well as the consequences for just walking away. Many people are in this unfortuante situation but you need to gather mor facts and information to make a good decision.


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Debra B Albe…, Agent, Port St Lucie, FL
Mon Mar 15, 2010
This is a great question. Walking away from an upsidedown mortgage may be your first inclination, however there are other options. You need to contact your lender. There are loan modifications and other options available to you, are you having trouble making the payments? Or you just fed up with the whole picture (you are not alone). Our Florida market was soaring in 2005. Prices were climbing so fast, and it was the days of "flipping" where many properties were purchased just to resell and make a profit. It worked for awhile! The lenders had "no doc" loans. We now know that there was probably fraud on both sides of the table. However, back to your situation...many Florida markets are up, way up in home purchases. To just walk away and ruin your credit is a huge step. Talk to your lender and try to find a remedy first. We hope this situation will work out for you, however, you need to be proactive first, not just discusted with the whole thing.

Debbie Albert
Coldwell Banker Residential
0 votes
Sun Mar 14, 2010
Hi Seadoc,

The greater questions of who did what and what is fair should not be important to you. Regardless of who is to blame, you should instead try to see your current situation clearly and make a plan that will get you out of it.

And, what is most important to you should be your credit report. A foreclosure will sit on your credit rating for a full seven years in the public/major section of your credit report. That is the same section where bankruptcies are reported.

If you short sell, it will only report in the regular liabilities section of your credit report and show up as a closed account settled for less than owed. It will have a vastly smaller effect on your credit rating then a full foreclosure will.

Besides most short sale negotiators will do much of the work for you. All you have to do is contact one and he will be happy to go to work on your behalf.

I have personally negotiated several short sales that been fully sold. Getting a bid on your home is easy and will not be a problem for a seasoned real estate agent who has learned to thrive in this market.

Also, I know a few investors in CA who are looking to pick up short sales so if you wanted to call me I could get you connected with people who could be very helpful in getting you to a reasonable end to your situation.

Good luck,

Andrew Ollick
Amerivest Realty
Faith Home Loans
800-801-6080 (outside of FL)

skype: napleshomes
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Alex Krumm, Agent, Sarasota, FL
Sun Mar 14, 2010

I see you've done some homework :) It's true that the scenario I laid out previously is primarily focused on recourse states - I'm on Florida's gulf coast, so I don't follow CA law. Regardless, Mickey (Randall Schweitzer) nailed it on the head with debt forgiveness.

The fact remains that a short sale is still better across the board for you than a foreclosure. I STRONGLY urge you to consult with a reputable real estate attorney (NOT just a regular attorney - you need someone who is up to date in this new market environment) and ask him or her how you should proceed.

There's a lot more to it than just a deficiency judgment.

Alex Krumm
Re/Max Alliance Grouo
941-234-3597 Direct
941-954-5454 Office
alex.krumm@verizon.net http://www.sarasotapropertygroup.com
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Leeann Willo…, Agent, Sarasota, FL
Sun Mar 14, 2010
It's an individual decision. I would tell you to consult an attorney who handles short sales etc. walking away might be the best decision for you. Just be prepared for the consequences, and there are many.
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Randy Schwei…, , Sarasota, FL
Sun Mar 14, 2010
Dear Seadoc,
Southern California is no different than parts of Florida with a large choice of properties on the market that are short sales or REO (bank-owned) because we appreciated at a much higher rate over the past 6-7 years. As a realtor, we are not supposed to provide financial or legal advise; however, having sat through dozens of hours with my clients meeting with real estate attorneys, most of the latter would recommend short selling your property. I am assuming even a major loan modification for you dropping the interest to 1-2% doesn't solve your problem.

Is this your primary residence? There are two or more entities for you to consider. One is the bank(s) with the loans and if your hardship qualifies you for a short sale & #2 is the IRS. To quote IRS website, the Debt Foregiveness on the 1st zeros out; however, any write off or debt forgiveness on your 2nd or HELOC loan is 100% taxable as ordinary income assuming the proceeds from the 2nd were not used exclusively for improvements to your home.

In almost all cases banks realize that the proceeds from a Short Sale will be at least 20-25% higher than repossessing your home and their having to deal with attorney fees, maintenance of the property, various risks, and legal fees. Someone referred to the ultimate total reported on a 1099 to the IRS would be substantially less than if you SS the property. Successful SS agents generally price the property at the very bottom of the comparable homes to hopefully get an acceptable offer by the bank. No matter how bad your market is, a well-valued and priced home will sell and represent less Debt Forgiveness to be reported to IRS.

If you are upside down 35-50% from the price paid, if normal home appreciation returns at a 3-4%/yr rate, it could easily be 10-15 years before the value might return to the peak value of 2005.

Currently industry & govt. sources indicate your credit will only be damaged for a couple of years in a SS vs from 5-10 years with a Foreclosure or a Deed in Liew Of (giving the keys to the bank). Unfortunately, you are like millions of other Americans faced with the same dilemma. I would recommend calling a major brokerage and asking the Broker (manager) for a recommendation of one of their best SS agents to meet and explain these options in detail. Also, http://www.google.com the topic.

I wish you well.

Randy Schweitzer
Coldwell Banker
100 N. Tamiami Trail
Sarasota, FL 34236
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Seadoc, Home Seller, Palm Desert, CA
Sun Mar 14, 2010
These are non-recourse states:

District of Columbia (Washington DC)
Montana (as long as non-judicial foreclosure is used)
Nevada - note that the lender CAN get a deficiency judgment
New Hampshire
Texas (but even in a non-judicial foreclosure, the lender can pursue a deficiency judgment)
West Virginia

These are states that also allow non-judicial foreclosure, and/or where non-judicial foreclosure is more common and deficiency judgments can be obtained more easily:
North Carolina
Rhode Island
South Dakota
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Alex Krumm, Agent, Sarasota, FL
Sun Mar 14, 2010
The short answer is that even if you default, you're still liable for the balance of the mortgage - including lawyers fees, interest, and penalties. The bank is extremely likely to sell your home and then hit you with a judgement on the property after they sell your house for a fraction of what is owed. This is very, very, very hard to get away from. Default is almost always the worst possible option.

A short sale, on the other hand, is a way for banks to recoup at least part of the money owed quickly and as painlessly as possible. Banks will almost always issue a full satisfaction of the mortgage (so there is no option to pursue the delinquent homeowner with a judgement) instead of dragging things on for years in the legal system.

In addition, if the home is a primary residence, new HAFA rules will further protect the borrower by mandating the full satisfaction, keeping short sales quick, and giving the borrower (yes, you read that correctly - the BORROWER) a cash incentive to move. This is optional for the banks, but the government is giving them a financial incentive to do so.

If real estate brokers are telling you not to walk away it's with good reason. DO NOT DEFAULT IF YOU CAN HELP IT - it will hurt you much, much worse than the bank.

Alex Krumm
Re/Max Alliance Grouo
941-234-3597 Direct
941-954-5454 Office
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Maripat & Bob…, , Sarasota, FL
Sun Mar 14, 2010
Hi Seadoc, Take a look at the article at http://www.berlinpatten.com on the front page entitled, "Why Just Letting the Bank Take the Property Presents Dire Consequences." That really says it all, what can happen when the homeowner just mails the keys to the bank or walks away.

Jail time! Good luck, we Realtors are not in any better shape, we all bought at the top of the market and are underwater, too. Best regards, Maripat Flood, Michael Saunders & Company
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