A homeowner in Delray Beach called me today and said his mortgage bank is going to foreclose on him as of the end of October because he has not been able to make his mortgage payments for several months. In the meantime he and his family can remain in the house, but they need to find a place to live as of November.
He also mentioned that he had around $75,000 equity in the Delray Beach home which he’d bought for about $450,000.
Short sales take a long time and impact your credit.
He asked about short selling the home.
I said that this is usually an easy process to start and that, because of the tremendous demand for homes in Delray Beach, we could find a buyer quickly. However, depending upon the bank, short sales may take up to 6 months or more to process. In addition, I cautioned him, they fail almost 66% of the time.
Beyond that, a short sale can impact your credit for anywhere from 2 to 4 years. A foreclosure typically creates credit problems for 7 to 10 years afterwards.
His home has increased in value.
However, he also mentioned that a similar Delray Beach home had recently sold for $525,000. After I verified the recent sales in the area and found that his home compared favorably to those nearby, I suggested to him that he engage a real estate agent and put his home in Delray Beach on the market.
The reason: he already has equity in the property. It’s worth $525,000. He owes $375,000 plus some bank fees. After realtor commissions, title fees, and transfer taxes, he is still likely to come out of the sale with close to $80,000.
So instead of simply losing the home and coming out with a) nothing and b) a badly impacted credit rating, now he has the opportunity to come out ahead financially.
Avoid foreclosure if at all possible.
He credit will be hurt slightly, because he failed to pay his mortgage on time for several months. But instead of losing his home, now he comes out with some cash. More important, he avoids the foreclosure, so he won’t have to worry about a 7 – 10 year credit hit.
So if you’re behind in your mortgage payments, but you have some equity – and you have already been turned down for refinancing –ask your realtor to give you an idea of what your home is really worth in today’s rapidly rising real estate market.
Depending upon what you paid for it initially, and how much you currently owe on the mortgage and in missed payments, you may (or may not) be pleasantly surprised.
Marc Jablon, The Jablon Team
Re/Max Complete Solutions