As home values rise many underwater homeowners are coming up for air
The following article has been written by Roy Oppenheim for the South Florida Law Blog.
For many homeowners the last few years have been like a trip on the Titanic. Rough economic seas sent thousands of homes underwater. Many have since sunk; but others who have managed to hold on are hoping for a happier ending than those who found themselves on the ill-fated voyage.
Rising home prices have driven down the number of homeowners struggling to keep their heads above water. Earlier this month, Corelogic reported that some 2.5 million more residential properties returned to “a state of positive equity” during the second quarter of 2013.
What that means is that because home prices are on the rise, many homes that were “underwater” are now floating back to the surface. By the same token, there were still 7.1 million homes or 14.5 percent of all residential properties with a mortgage still with negative equity at the end of the second quarter of this year.
So, what does that mean? Well, even for those on the brink of sinking, it could mean the difference between going all the way underwater in a foreclosure, or keeping their head above water temporarily until they can get their home sold in a short sale.
Keep in mind that the same people who sell now, also will be able to get back into the market and buy a new house tomorrow, which can only serve to improve the current state of the market.
Better yet, the Federal Housing Administration announced last month that homeowners who were laid off and lost their homes to foreclosure or who ended up in bankruptcy court could qualify for a new home loan just one year after a foreclosure, short sale, deed-in-lieu of foreclosure or bankruptcy. Previously, it was three years for a short sale and foreclosure, and two years for a bankruptcy.
So, what are you options these days? Lenders, who just a few years ago balked at offering a waiver of deficiency, are now doing so with greater frequency. A waiver of deficiency essentially means the lender waives any right to pursue collection of any deficiency once the sale is completed.
In addition, short sale incentives are becoming more common.
If you are willing to give up your financials and you have true hardship then a short sale is probably a better route. But if you can’t get one done, or the lender wants to see your financials, then doing a foreclosure, if you can get a waiver of deficiency, might be an alternative route that is acceptable, particularly because the differential in the financial impact on your credit isn’t as significant any more.
So why is this happening? It certainly isn’t because banks now have become friendlier; rather the banking industry craves your business.
Let’s face it, the last couple of years have been tough for them too. Lenders need to lend, and if they can’t, they do what many have done, start to lay off workers.
Citigroup just reported plans to lay off an estimated 2,200 workers in its mortgage business by early next year. It blames rising mortgage rates, which have resulted in fewer people refinancing. Bank of America and Wells Fargo also announced layoffs.
Unlike that cruise ship industry that keeps building bigger ocean liners, big banks won’t be able to keep growing unless they are able to bring in more business by getting more people into new mortgages.
Real estate attorney and foreclosure defense attorney, Roy Oppenheim left Wall Street for Main Street, founding Oppenheim Law along with his wife Ellen in 1989 in Fort Lauderdale, Florida, and is vice president of Weston Title and creator of the South Florida Law Blog, named the best business and technology blog by the South Florida Sun-Sentinel. Follow Roy on Twitter at @OpLaw or like Oppenheim Law on Facebook.