Q–Our house is “upside down.” We owe more on its mortgage than the house is worth. A real estate friend says we can “walk away,” because a mortgage foreclosure will stay on our credit file for only two years and then we can buy a more affordable home. What happens to a borrower’s credit when you can no longer afford to pay the mortgage, and the house goes into foreclosure?
A–Mortgage defaults stay on your credit report more than two years. Also, there is a question on mortgage loan applications asking if you have ever been involved in a foreclosure. However, a few lenders will make mortgage loans at high interest rates to borrowers who have been in foreclosure. Most will not. If you default on your mortgage, you will probably regret it. FHA and VA lenders often pursue defaulting borrowers for deficiencies, even in states with anti-deficiency laws.
Rather than defaulting on your mortgage, I suggest you write to your lender, explaining why you cannot afford the mortgage payments. Perhaps a reduction in the mortgage interest rate can make your payments affordable. Or ask the lender to approve a “short sale.” That means you sell the house for its market value and the lender agrees to accept the sale price as full mortgage payment.
Rather than walking away and ruining your credit, try to work with the lender to salvage your credit. You can get out of this situation with dignity by doing what is right.
Q–As a Realtor for 51 years, I strongly disagree with your constant advice that home sellers should ask listing agents for a CMA (comparative market analysis). CMA numbers can be manipulated by the agent to “buy” listings.
For example, I recently beat out other agents on two listings by suggesting the sellers obtain certified appraisals. One house had CMAs from $115,000 to $136,000. The other ranged from $146,000 to $196,000. The certified appraisal on the first house was $119,000 and $190,000 on the second house. I sold the first house for $115,000 and the second house for $178,000.
CMAs are for novice real estate licensees. An up-front certified appraisal is the best way to determine the correct listing price
A–Congratulations on being an active Realtor for 51 years. Compared to you, I’m just a novice–I’ve only had my broker’s license for 29 years.
We agree that CMA accuracy depends on the skill of the real estate agent who prepares it for the home seller. However, I’ve seen professional appraisals that are far off the eventual sales price of the home. The big advantage of CMAs is that they are free; appraisals cost several hundred dollars without any assurance they are more accurate. Also, the home seller should get at least three CMAs before listing with the best agent.
A professional appraisal is a good double-check against a CMA. But the appraisal is only as good as the appraiser’s skill. I still recommend home sellers interview at least three successful local realty agents, obtain their CMAs and phone their recent sellers to ask, “Were you in any way unhappy with your agent and would you list your home for sale again with the same agent?”
Q–Thank you for your recent explanation of how the 1997 Tax Act benefits home sellers. This new law is a godsend for us. We have about $200,000 profit in our home. We were worried that when we sold, under the old “over 55 rule” we could only get $125,000 of tax-free profits. Now that all our sale profit will be tax-free, we are undecided if we should buy a small house or condo in Florida (where there’s no state income tax!) or rent a place. What do you recommend for two “seniors” age 74 and 77?
A–Please don’t rush into making a home purchase. A friend of mine, now 78, did that about two years ago. After he sold his home in New York, he quickly bought a beautiful home in Sarasota. But he recently told me he hates the hot, muggy summers and plans to sell his Florida house so he can move back up North.
My suggestion is: Try renting and living year-round at your Florida location to see how you like it. If all goes well, you can then take your time buying a small house or condo there.
Q–In September, we bought a new home. The lender made a big deal about our signing a paper stating we intend to occupy the house. We’re living in it, but I find the long commute to my job makes me tired and grumpy. My brother and his family want to rent our house (it’s close to his job). We want either to rent or buy another house close to my work. Can the lender do anything if we move out?
A–Your lender wanted you to sign that owner-occupancy statement so it could then sell the loan an owner-occupied home mortgage. Investor-owned mortgages are considered riskier.
Some lenders spot-check six months after loan origination to see if the borrower is still living in the house. If your loan should be audited, just explain you lived in the house but found the commute too long. I’ve never heard of a lender penalizing the borrower for moving out of a home for a legitimate reason such as yours.
Q–This past summer, I signed over our marital home to my former husband. It was approved by the judge and recorded. When I recently applied for a credit card, my application was denied for “unsatisfactory information.” I then learned I am still on the mortgage of the house I no longer own. When I talked with my ex, he said the only way I can get off the mortgage is if he refinances, and he has no plans to do so. Since I want to buy a condo and apply for a mortgage, how can I get loan approval with this mortgage on my credit report?
A–Sorry, there is no way you can force your ex-husband to refinance so your name can be removed from the mortgage obligation on your former residence. Your situation should be a lesson to those in the process of getting a divorce.
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PLEASE NOTE: Real estate laws vary from place to place. Be sure to check the laws of your state and municipality before making decisions on real estate matters.
