The Housing Crisis
(CONTINUED FROM PAGE 63)
A foreclosure notice can be scary, but
you still have options, including:
; Selling your home on the open mar-
ket. (Be forewarned: You’ll have to pay
off the loan and any penalties that may
; Selling your home as a short sale—
which means the bank agrees to accept
less than the outstanding loan balance.
The same housing counselors can
guide you through this process.
; Working with your bank on a deed
in lieu of foreclosure, where you hand
back the deed without going through
the foreclosure process.
If you’ve received a foreclosure
notice, your main goal is to get out of
the home without owing the bank additional money. In some states the bank
can go after you for the balance of the
loan; in others it cannot. Find out your
state’s rules at Nolo ( nolo.com), a legal-information website.
Feeling overwhelmed? Consider
hiring a lawyer to walk you through the
process. If you don’t have the money,
check with the pro bono panel of your
local bar association.
Golant occasionally advocates something lenders hate: strategic default,
otherwise known as walking away
from a loan that’s underwater. “The
mortgage industry tries to tell people
they have a moral duty to pay,” she says.
But she sees no obligation beyond what
the law and contract require. (Again,
the law differs in each state, so check.)
She recalls a couple whose home
was hundreds of thousands of dollars underwater—not uncommon in
Florida—while a nearby house was
on sale for half what they owed. Their
house was in the husband’s name only,
and the wife’s income was protected
from his creditors. “I told them, in all
seriousness, that if it were me, I’d buy
the house up the street,” Golant says.
The Florida couple’s circumstances
notwithstanding, most advisers do not
advocate strategic default, since it will
sink your credit. Homeowners who go
through foreclosure or who walk away
from their homes will not qualify for
another loan for five to seven years.
Your equity has vanished
What if you’re one of the millions of
homeowners who are making their
payments just fine, but you’ve lost equity or are even underwater?
“If you don’t have to sell, don’t
panic,” advises Rick Kahler, a certified financial planner at Kahler
Financial Group in Rapid City, South
Dakota. “The equity could come back.”
That could take a while in Florida or
Arizona, where many homes have lost
half their value, but less so in states like
South Dakota, where prices have fallen
less than 10 percent. The credit-rating
agency Moody’s predicts many homes
will regain their peak values by 2021.
If you do need to sell your home, you
may have to cut the asking price more
than you had planned. But look at it this
way, says John H. LeBlanc, a certified
financial planner with Modera Wealth
Management in Boston: “You might
have suffered a lot of equity loss, but so
has the house you’re looking to buy.”
In retirement, he tells clients, cash
flow is the important thing. So if you
need to improve cash flow right away,
you should try to downsize to a small-
er home before you retire.
In Oakland, Lynette Neidhardt opt-
ed not to downsize, in part because of
the close bonds she has made with her
neighbors. “I don’t want to leave,” she
says. “As a single person, I consider
my neighborhood my family.” That
doesn’t mean it hasn’t been hard. “The
horrible part was never knowing from
one day to the next whether I would
save my home. On the other hand, the
really good part was realizing that
a neighborhood is way more than
houses on a block—it’s people you care
about and who care about you.”
Which makes keeping your home a
goal well worth pursuing. ;
Maryann Haggerty is the former real
estate editor for The Washington Post.
Michael Hudson is the author of The
Monster: How a Gang of Predatory
Lenders Fleeced America.