Carlsbad, CA–We hear the news that over 20 percent of all mortgages are underwater, where more is owed to lenders than what the home is worth. These are statistics that drive markets, create new industries, kill others, and cause so many of us to wonder about alternatives to the disorder of short sales and the losses incurred in foreclosures.
The real pain of these statistics occurs when someone or a family lose a job, when unemployment forces a move–or when life circumstances change for the worse. These people need to move on, and most do not have the means to make up the difference between what is owed and the price at which the home will actually sell. There is also a reported national “tsunami” of delinquent mortgages sitting in limbo, where neither a short sale has been approved nor a foreclosure accomplished. It’s this shadow inventory that contributes to keeping our real estate economy in turmoil.
So what’s a defaulted lender and a defaulting borrower to do?
How about a simple deed in lieu of foreclosure–where the borrower hands over to the mortgage lender the keys and deed to their underwater home — leaving the residence intact and in reasonable marketing condition? And instead of paying $30,000 to $60,000 or more in foreclosure costs or the expensive time delays in short sales, the lender can take possession of the home and almost immediately turn around and sell it on the open market.
And to REO’s or bank-owned properties sell faster than short sales? They certainly do in the San Diego real estate market. Agents and buyers both know that that the price is set and purchase can be a certain one
Sure, there are potential and ever-present complications like second liens, unpaid HOA fees and deferred maintenance. But those are issues that might also exist in a short sale–and could be negotiated at a much earlier point in the transaction if a deed in lieu of foreclosure were accomplished. Savings for lenders could also be improved by pulling local Realtors into the process even before the keys are handed over to the lender. The agent could provide an estimate of value, help coordinate the transaction, check condition of the property when it is vacated and begin the marketing process almost immediately.
And not only the lender would benefit.
Vacant and vandalized properties can devastate neighboring home values–and that downward spiral is one that is very capable of building its own vicious momentum, especially when combined with an economy crippled by unemployment. Better to keep homes out of limbo–and out of that dreaded shadow inventory. Go ahead, accept the keys, get the home on the market and let the former homeowner get on with life–and a credit rating that can be repaired in a couple of years (versus the 5 or 7-year hit that comes with having a foreclosure on one’s record).
This morning, Sacramento Realtor Gena Riede wrote about one of her clients who is desperately trying to get her lender to accept the deed and keys to the home she can no longer afford. It’s proving to be an uphill battle with decision-makers based in India.
There’s just gotta be a better way….
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