So according to CoreLogic, a real estate analysis company, 19.5% of the mortgages in the Greater Richmond area, a total of 44,307 properties, are under water. That means the owners owe the bank more than the property is currently worth. Another 6.5% of home owners, or an additional 14,131 properties, have less than 5% equity in their homes.
What does this mean? Nothing good, especially with real estate values flat-lined. If you are one of those home owners with negative equity in the home, what are your options?
1. Short Sale: Sell the property for less than it is worth, with the permission of the bank. That's the kicker - you have to be eligible for a short sale, meaning you have suffered some "hardship," AND the bank has to be willing to accept mortgage amount minus $X. AND you still have to sell your house on the open market.
2. Mortgage Modification: Even harder than the short sale. Means you have to get the bank to change the terms of your loan - amortizing it over a longer period, decreasing your interest rate, or forgiving principal - so you can remain in the house with a reduced payment.
If you think a short sale is hard, you haven't tried a mortgage modification. I had one client that tried unsuccessfully for 15 months. A lawyer friend of mine did get a modification, but it took 10 months and effort every single day. You never talk to the same people. The banks lose paperwork. The Loss Mitigation and Collections Departments don't talk to each other, so one group is telling you you are eligible for modification, the application just needs to be reviewed by the right person, and the other group is sending foreclosure notices. Welcome to "Alice-in-Wonderland-through-the-looking-glass" land.
3. Stay Put: Probably the best option. But sometimes people have to move, even if it is a terrible market. Think job relocation, divorce, illness, death in the family.
4. Rent: See if you can find a tenant that will cover all or at least most of the mortgage. Move into something more modest, likely a rental, since most people can't buy without selling. And pray the market improves.
None of these is a good option. But welcome to the new normal. The only thing that is going to fix the real estate market is time. And the federal government not doing more stuff to screw it up - but that is a totally different discussion.
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