Sorry, we can’t take your home back!

The state of affairs for mortgages is amazingly foggy. Here is how I see it. You might be under water. You decide to give up that house you considered your dream home just two or three years ago. You understand that your credit will be damaged, but you are hoping that it won’t be a problem for long because so many other people are in the same boat.

You stop making payments. You get the letter indicating that foreclosure is coming from your bank. You list your house for sale, beneath the amount of the debt you have against the house which is called your mortgage.  Maybe, you think, you can short sale it! Not quite as bad as foreclosure. Sure enough, a buyer is attracted to your property and makes you a ridiculously  low offer. You negotiate and settle on a price with the buyer. Yippee! Wait! Don’t break out the champagne just yet. The bank who holds your mortgage needs to agree to accept less than you owe them. You submit them the offer. You wait. And wait. And wait. No one gets back to you or your Realtor. The buyer is getting antsy.

What is taking so long? Doesn’t the bank realize that this buyer has money to spend and wants to buy your property? What are they doing?

Well, here are some things the bank might be doing. The bank might have taken out an insurance policy on the mortgage they gave you a few years ago. Now they are checking to see if the insurance claim will pay them more than your buyer’s offer. They are looking at their own records: can they afford to accept less or are they better off going forward with foreclosing and then having your property on their books as a declining asset?And oh look at this! When the mortgage holder reviews the original mortgage documents, they find a mistake……and now they are exploring whether or not they can force the loan originator to take the mortgage (and its risks) back!! If that is the case, you will be negotiating with a different lien holder.

This takes time, and the buyer waltzes out the door to buy a property that is more affordable and can close more quickly. The buyer is dealing with  fluctuating loan rates and more (and more) inventory to choose from. Remember, the buyer must also preserve his excellent credit score and not assume any additional debt…..so he has to put off buying that Super Bowl T.V. that is on sale right now if he still wants to buy your house. So the buyer decides to make other plans instead of buying your house.

Now let’s say the bank finally does decide to foreclose on your house. You feel guilty and miserable; you find a rental or move in with your in laws; your hours at work are reduced yet again. No, regardless of that hardship letter you wrote, the bank does not care what happens to you. And can you blame them? After all, you broke your own promise to pay them back!

So what is the bright side? Life does indeed go on.