Unexpected Happenings: A Cash-in Refi? Standard Sale of an Underwater Property?

Here's a new term for you: a Cash-in Refinance. It's not a recommendation, but an interesting concept whereby homeowners wanting to refinance their homes but having little or no equity actually contribute new funds at the time of the refi. It's one way to take advantage of the amazing rate environment we're experiencing, and there are scenarios where this actually generates a positive return.

Another approach, if you are slightly underwater, is to pay the difference on sale of your home, in order to preserve your credit while getting highly favorable loan terms and a great price on a trade-up property.

More info: Doubling Down on Housing - WSJ.com

-David

The 60 Minutes Walkaway: Conscience and Consequences

Debt forgiveness has long been a taxable event.  But the taxability of purchase money mortgage debt forgiven by a lender was relaxed by the Bush Administration and has been further lessened under Obama.

Yet there are limits, and these should not be a surprise to anyone, including those who appeared over the weekend on 60 Minutes bragging about how they plan to walk away from their homes without remorse - - or even to continue living in their homes without paying their mortgages until lenders physically ousted them, just because they can.

A key exception to tax relief

Short sale vs. loan modification

Your home value is underwater.  Not like in the Nashville flooding disaster, but as in home value less than mortgage debt.  Should you consider a short sale, loan modification, or another option?  Tara-Nicholle Nelson offers a smart perspective in her article 3 tips for a successful short sale | Inman News.

Because each of these options is somwhat hit or miss, the answer may be "all of the above." - David

Posted using ShareThis

Pursue short sale before deed-in-lieu | Inman News

Your home is underwater (vs. the mortgage, that is).  Why not just hand over the keys and the title deed to the bank and walk away?  Because the bank probably won't accept them.  Here's why:

Pursue short sale before deed-in-lieu | Inman News

-David

Posted using ShareThis

Try forbearance to fix late mortgage

Try forbearance to fix late mortgage.  This is a lesser-known term than "loan modification," but in some cases it can give a homeowner time to get back on his/her feet.  Definitely worth a try if you are in need of mortgage relief. -David

BofA to start reducing mortgage principal - Yahoo! News

Despite the legal motivation, B of A is beginning a very important process.

Quoting from the Yahoo News article, "The bank, the largest mortgage servicer in the country, said Wednesday it will forgive up to 30 percent of some customers' total mortgage balances. The homeowners must have missed at least two months of mortgage payments and owe at least 20 percent more than their home is currently worth."

This should put pressure on other lending institutions to follow suit, preventing a slew of foreclosures and short sales. Good news indeed! - David

Years after loan default, homeowners may still owe - Sacramento Bee

Don't let this happen to you:  The downturn forces you to do a short sale, relieving your first mortgage debt.  But the second mortgage isn't officially forgiven, and later comes back to bite you.  Quoting from the Sacramento Bee,

"In many short sales, experienced real estate agents or attorneys can negotiate away debt obligations for the second-lien loan. But many inexperienced borrowers don't know that, and sign final-hour agreements giving lenders the right to pursue them later."

If you're involved in a distress sale from either side of the transaction, an experienced advisor is crucial. - David

Many Stay at Home for Free as Banks Defer Evictions | RISMedia

Deferred evictions mean some owners who are underwater or severely behind on their payments continue to occupy their homes without being ousted.  This is much more of a problem in areas more troubled than the South Bay, but we've seen it happen here too. 

But some short sales in the area display this same behavior - - somehow, the offers that come in never seem to get approved.  In some cases, the short sale is just a sham, giving the homeowner the opportunity to tell their lender that the home is listed for sale when in fact they have no intention of moving out!

The meaning of all this is

New short sale rules impact homebuyers

It remains to be seen how new short sale rules will impact homebuyers.  The Home Affordable Foreclosure Alternatives program (HAFA) hopes to speed the short sale process, but all parties will be affected. - David

Cutting through the red tape of home short sales - MarketWatch

More about short sales, some hopeful.

Cutting through the red tape of home short sales - MarketWatch

If lenders get serious about allowing these and processing them within a reasonable time (there are reasons why they don't want to do so; see my earlier posts on the subject), this is another opportunity to stabilize the real estate market, get homeowners out from their underwater mortgages, and avert foreclosures. That's a good thing, and banks who comprehend it will be making a tough situation better on themselves and the market. - David

HAFA Short Sale Rules may Help Sellers - FOXBusiness.com

Greater lender receptivity to short sales?  Let's hope so! They have been slow and unpredictable.- David

HAFA Short Sale Rules may Help Sellers - FOXBusiness.com

ROI: When It's OK to Walk Away From Your Home - WSJ.com

Do you agree with this statement?  "Walking away from debts is as American as apple pie."  How about this one? "The economy is fundamentally amoral."

To me, the first statement is offensive, the second represents a real quandary in a system based upon honesty and fair dealing, and both define the dark side of the moral dilemma

How lenders decide whether to modify a mortgage - MarketWatch

Ever wonder how lenders decide whether to modify a mortgage?  Sit down, relax, take a deep breath, and read this (partial) answer. - David

Posted using ShareThis

What Mortgage Modifications Say About the Housing Market - CNBC

B of A, a huge mortgage lender, has staffed up its troubled loan team and signalled a greater willingness to grant loan modifications.  But this is off a tiny base, so a relatively small proportion of homeowners needing help have actually received it. Still, it's moving in the right direction.  - David

Underwater move-up strategies - Inman News

I do not endorse wrap-around mortgages or all-inclusive trust deeds (AITD's). They're generally viewed as attempts to subvert the intention of the bank or investor holding the original mortgage, and that's not a good strategy for people who like to sleep at night.  Still, creative strategies are needed for homeowners who are underwater and need to make a move. An experienced Realtor is essential to the mix, and a real estate attorney may help to achieve a successful solution as well. - David

Posted using ShareThis

Mortgage Mess Breeds Unlikely Allies - WSJ.com

Jim Hagerty gives some valuable insights on the pros and cons of principal reductions in the minds of key lenders and investors.  Though the government seems to prefer extending due dates and lowering interest rates, the number of homes that are presently underwater tell us intuitively that this is an insufficient and unrealistic solution.  Political and fairness issues?  Sure, but do we want to help homeowners and the real estate economy or don't we? - David

As Values Slide, More Weigh Walking Away From Mortgages - NYTimes.com

Where home values have slid to 75% or less of their mortgage, more are considering "walking away," meaning leaving their home for the lender to take back in foreclosure. 

As Values Slide, More Weigh Walking Away From Mortgages - NYTimes.com

This is less the case in the South Bay than in many areas, but it's a trend worth watching.  Banks are certainly not using TARP money to help these homeowners stay in their homes, resisting short sales and loan modifications like the plague.  But short sales are possible, and the consequences with respect to one's credit are less than a foreclosure. - David

Treasury seeks to speed up mortgage modifications - MarketWatch

This program is yet to be seen, but the Feds have finally incorporated what's been needed all along: an incentive for loan servicers to be receptive, responsive, and participative when homeowners come calling for mortgage modifications.

Treasury seeks to speed up mortgage modifications - MarketWatch

So pleased to see the Federal Government show even the slightest faith in incentives, which in the business world we know can work wonders! - David

Posted using ShareThis

Paperwork Woes Plague Mortgage Plan - WSJ.com

Watch the deadline if you're looking for a loan modification. Like so many programs, participants often wait till the last minute and then find they're last in line (or worse, too late). - David

Paperwork Woes Plague Mortgage Plan - WSJ.com

Will walking away from a mortgage go mainstream? - LA Times

As earlier reported, it's not my intention to endorse what are popularly being called "strategic defaults." Roger Lowenstein, a former editor of the Wall Street Journal's "Heard on the Street" column, writes about the topic at this link:

Will walking away from a mortgage go mainstream?

Certainly walking away from properties that are underwater on their mortgages will have a seriously detrimental effect on one's credit.  But the concept may deserve thought when a property is so far underwater as not to stand a reasonable chance of recovering that difference in value within a meaningful time horizon.  Food for careful thought; ground that should be treaded lightly. - David

Posted using ShareThis