Can you hang on to your home?
May 9, 2011
EAGLE COUNTY – Financial planning looks different for people facing money troubles.
A combination of a national economic slump and the subsequent damage to the local real estate and construction industries helped create a record number of foreclosures in Eagle County last year, and this year’s numbers aren’t much better.
Most foreclosure files opened are closed before the final step – a property sale, usually to the lender that holds the mortgage on the property. And that last step is final. Owners have lost their property once the sale takes place.
A number of things can happen between the initial foreclosure filing and the sale date. Here’s a look at some of the possibilities.
Many people strike some sort of deal with their lenders to modify their current mortgages.
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Avon-based mortgage broker Chris Neuswanger said people who take the modification route need to make sure they keep very careful notes of who they talk to. If people can’t talk to the same representative every time, those notes can let the next person know what the previous person said.
“Get last names, and direct phone numbers if you can – although that doesn’t happen very often,” Neuswanger said.
People trying to work out a loan modification also need to be sure the appropriate paperwork is properly filed with Eagle County, Neuswanger said. And they need to keep making payments, if possible.
While lots of people are getting their loans modified, not many get anything knocked off their principal.
“That’s not something a loan servicer can do most of the time,” Eagle-based attorney Ed Woodland said.
The problem, Woodland said, is that companies servicing mortgage loans owe their primary allegiance to the investors who stand to lose money if any principal gets taken off the loan. What many people end up with instead is either a reduction in interest or extending the length of the repayment period.
Homeowners in trouble face further complications because the local housing market has lost so much value, especially downvalley. And loan modifications are tougher to negotiate if someone is out of work or working part-time.
“Your best bet is to work with whoever is servicing your loan, but you need to be realistic,” Woodland said.
Other homeowners are working with local real estate brokers on “short sales.” Those sales are negotiated with lenders and homeowners, with the lenders agreeing to take less than the full amount of the mortgage in exchange for a quick sale.
Short sales these days make up a big part of the real estate market downvalley. Barb Hogoboom of Keller Williams Realty in Eagle said half or more of all the business she’s doing these days is either short sales or properties that banks have already taken in foreclosure.
“But a short sale isn’t necessarily for everyone,” Hogoboom said. “If your only (financial) issue is your home, a short sale might work – you can always get another house. But if there are other financial problems, we usually send people to financial consultants.”
One of the problems with short sales is that without the right agreement with a lender, a homeowner can still owe money even after his home belongs to someone else.
“But the banks are starting to pay attention to this area,” Hogoboom said. “We’ve closed several sales lately where the bank hasn’t come after the owners.”
More and more people have looked at the financial landscape and are choosing bankruptcy. Woodland specializes in bankruptcy law, and his business is thriving.
“The loss in value here has really handicapped people’s ability to refinance or sell,” Woodland said. “And if you’ve lost the ability to earn, that’s a double whammy.”
Homeowners who do nothing can still owe money to their lenders if a home sells at foreclosure for less than the amount of the loan. If a second mortgage is involved, a homeowner can find himself liable for that amount, too.
“At that point it’s about survival,” Woodland said. And that’s where bankruptcy enters the picture.
Bankruptcy – and there are three kinds available to individuals – can help people get a fresh start, Woodland said. Combined with the foreclosure process, it can allow people to live in their homes a bit longer – up to a year in some cases – and can help either eliminate or reduce other debt.
“We see two kinds of people about bankruptcy,” Woodland said. “The first kind use it as a re-set for their finances. The other kind are people literally at the end of their rope, just trying to hang on. It works pretty well for people as a tool, and less well for the people at the end of their rope.”
And, while a bankruptcy stays on a person’s financial record for a decade, Woodland said he knows clients who have started receiving credit-card solicitations within months of completing bankruptcy.
“You can often get a car loan within six months, and buy a home within two years in some cases,” Woodland said.
But what bankruptcy doesn’t do is give multiple chances.
“You can’t file again for eight years,” Woodland said. “That means creditors can chase you that long – garnish your wages and more.”
Susan Balcomb is an accountant and debt consultant in Eagle. She said her consulting business has fallen off in the last year, mainly because people just don’t have a lot to work with.
“These days, I’m working with people planning exit strategies,” she said.
Business Editor Scott N. Miller can be reached at 970-748-2930 or email@example.com.