A Homeowner's Guide
for the Next Recession
A Traditional Home Sale
A traditional home sale is when you sell your home on the open market at an agreed upon price; it is not a short sale or a real estate owned (REO) sale. The total of your debt tied to your house (e.g.morgages, home equity lines of credit) is less than the current value of your home in a traditional sale. In other words, a homeowner does not owe more than the home is worth. A quick way to determine this is to look up your home in zillow to extract their "zestimate"; this is rough estimate of your home value. Then add up your principle mortgage balances and home equity debt; the value needs to be greater than the debt. This is not 100% accurate, but it will help give you a general sense of where you stand.
Home values have recovered since the great recession and most home most homeowners in California hire a real estate professsional to sell a property.
A Short Sale
A short sale is when you sell your home on the market for less than what is owed. A short sale requires the approval of your lender(s) or loan servicer. This type of sale will allow you to avoid a foreclose and minimize the damage to your credit. A foreclosure and a bankruptcy are worse for your credit than a short sale. A short sale is often the best outcome for homeowners under distress and want to sell their home minimize the impact on their credit.
The first step is to reach out to your lender or loan servicer. Real Estate agents, an attorny or short sale specialist can guide you through the process. The process takes longer than a traditional sale because an agreement between you and your lender(s) needs to be reached in order to sell the house. The delays are always almost from the lender(s) who need time to respond and process your short sale. Real Estate agents will market your home and guide you through the transaction. Contact an agent to inquire more about this.
Evan Haug CalBRE: 0181733
A Deed in Lieu
A deed in lieu of foreclosure is the process of releasing all of your interest in your property to the lender. You will sign over the deed to your home to the lender instead of going through the foreclosure process. You are walking away from your home when you exercise this option. Like a short sale, lender approval is required and you can only have one mortgage on your property for this to work.
A deed in lieu of foreclosure is advantageous to both borrowers and lenders. Lenders see it as a faster and less expensive alternative to a foreclosure. Borrowers benefit as it is less damaging to their credit than a foreclosure or bankruptcy.
This option is not as popular as the other alterative because it is only an option for homeowners who have one mortgage and their home value has not declined considerably.
Walk Away
Many people choose to stay in their homes throughout the foreclosure process and then walk away after the auction. Homeowners can go months and even years without making a single payment while living in their homes. I put this option here for homeowners as they should be aware of this option despite the damage to your credit. This is usually the least favorable outcome for lenders.
If you are adamant about staying in your home and unable to make payments, then you can stay in your home all the way up to the auction date. When your home sells at the auction, you will face eviction or a sheriff lockout. Nevertheless, with this option you can live in your home for free for at least a few months until your home sells at auction.