Strategic Defaults
0
They can make you crazy
Strategic Defaults
The question I get often is what do we do now. Many times my answer is very straight forward and applies to most folks that find their properties upside down. If you owe $250,000 on a mortgage and the property is only valued at $125,000 I think you better think long and hard of a proper strategy. Lets face it, the odds of that property growing in value to $250,000 (Parr value) may take ten or fifteen years and maybe longer. The simple answer is no one really knows what will happen. But I know this much, you do not own anything. What I mean to say is you have a major liability rather than an asset. Not a good way to look to the future for retirement. The way I interrupt this scenario is you are renting the home from the lender. And if each and every dollar you pay towards the mortgage is not adding to principal then what is the sense.
I would never tell someone to default on their mortgage but I would tell each and every client to think about capital preservation and long term financial planning. In that vain we need to think about what is best for you and your family. And to think the lender cares about your situation you would be sadly mistaken. The lender cares about one thing, squeezing as much cash from you as possible. There comes a point where you need to sit back take a deep breath and understand the consequences of what you do today and how that will effect your financial well being in the years to come.
I too have been in a similar situation as I owned a good size building company from 2001 through 2008. I found myself upside down to the tune of two million dollars. I took quick and swift action to clear the deck and get ready to fight for another day. I realized that the loses had already impacted my financial health and knew I needed to get the monkey off my back to allow for improving my personal financial health.
At the end of the day I sat back and evaluated how such actions would effect myself and my family and decided the proper course of action was to rid myself of what had become worthless inventory. This allowed me to get back to building the kind of financial well being required for my family.
Working With Your Lender
Can you fax that document one more time
Working with your Lender is not an experience many of us wish to ever do again. Many have learned just how poor some of these major institutions are run and have such a bad taste in their mouth they rather never call the lender again. I don’t blame you, after working with the lenders day in and day out for almost four years I have come to have a real appreciation for my staff members that endeavor that task each and every day. Hearing a lender say, can you fax that back over is enough to make a sane person crazy. Where did the last 95 page fax go to? If I told you how many times we have heard this it would be enough to make your head spin. I learned early on the lender is not your friend. With the advent of a new system called Equator things have improved, the problem is very few of the lenders have adopted the system. At one point when I managed the Law Firm I hired a loss mitigation specialist that had worked with Ocwen Bank and a Regional director with Freddy Mac. The stories they told me were almost unbelievable.But having worked in the trenches since 2007 it all started making sense. What most people do not realize is these institutions typically dealt with very few short sales and foreclosures. The loss mitigation department for a large institution was made up of only ten or less employees. These days that number could easily be in excess of 500 for a large lender. Normally these institutions would handle questions by clients, receive payments and send out statements. Really simple when you think about it. So what did the geniuses do in 2008? Fire almost 250,000 folks working in the banking business. Then it started, up to 25% of all homes found themselves to be under water (40% in Florida), where the value of the home was much less then the current mortgage balance. To add additional fuel to the fire the unemployment rate in the united States soared to over 9% nationally. Talk about a squeeze play. The mortgage defaults started piling up at such a high rate the lenders could not handle the onslaught of Loan Modification request, Short Sale requests and requests to perform a deed in lieu of Foreclosure. A mess to be sure.
As we fast forward to the start of 2012 the landscape looks as bad today as it did three years ago, and many think much worse. The level of shadow inventory in the United States is so immense it’s enough to make your head spin. Some say it may be 2017 by the time we dig ourselves out of this mess. A shadow inventory represents those properties that are literally in limbo, houses that could be foreclosures on but are not, or home that have been foreclosed and have yet to be put on the market to be sold.
