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Barely Hanging On?

Help!

I met with a potential client yesterday who had asked me to come out and provide her with some insights on selling her Bothell, WA condo.  She would like to sell it and purchase a single family home.  The only problem? She’s upside down on the mortgage.

This is a common problem throughout the country, and especially within her condo complex. I wrote about another condo complex in Lynnwood, WA a little while back that had the same issue (you can read that post HERE).  In the Bothell complex, there are 5 units for sale.  Two are bank owned, two are short sales, and one is a fair market value sale.  The distressed sales (Bank owned and SS) are priced well below what the values were when originally purchased.  The lone fair market sale is beautiful inside, but will have a difficult time competing since it is priced over $100,000 more than the other units in the same complex.

4 Options For Homeowners

Owning a home right now can feel a bit like tossing coins in quicksand. Every dollar you invest seems to sink into the abyss, never to be seen again. This feeling is especially true for people who purchased their home between 2006-2009.  I can attest to this from personal experience.  And also like quicksand where the faster you run, the quicker you sink; acting on impulse with regard to your home can have the same consequences, financially speaking.  Fortunately, there are options available, so stop and take a deep breath. Here are a few choices to ponder:

  • Stay Put
  • Rent It Out
  • Short Sale
  • Walk Away

Ride It Out

This is the easiest option for my client, but maybe not for others in a similar situation.  My client has the ability to pay the mortgage.  She would just prefer to live elsewhere.  For millions of other sellers upside down on their mortgages and unable to continue paying, this is not an option.  It may take several years for the housing market to recover, but if you don’t need to sell, this is certainly the best course of action.

Become An Accidental Landlord

In 2009, Time Magazine wrote an article addressing this new scenario. In fact, there is even a book titled “The Accidental Landlord” written in 2008 by Danielle Babb (if you live near a Borders Books, you might be able to pick up a copy here at 40% off the list price, before they close their doors for good). The article by Times (read it HERE) provides a brief overview of the situation and some quick tips, while the book is a more extensive reference guide for homeowners who suddenly find themselves in a situation where they simply must rent out their home when it won’t sell (at least for the price they would like to get for it).

Negotiate a Short Sale

If you cannot afford to stay in your home, and renting is not a possibility, then this is the next best option.  Your credit will take a hit, but at least you’ll be able to move on with your life (as a renter for the next several years).  There are other financial consequences besides the credit ding, so you should speak with a financial adviser (or tax attorney) before walking down this path.  Ironically, amidst this financial crisis, a whole new industry has emerged to help people negotiate the winding path in dealing with the banks regarding short sales.

Turn Out The Lights, Lock The Doors And Leave The Keys In The Mail Slot

As my cooking idol, Alton Brown is fond of saying, “Walk Away, Just Walk Away”.

By this, I mean let the banks foreclose on your property.  However, in doing so, you run a much greater risk than Alton just over-mixing his biscuit batter.  The banks will come and take back the home, you won’t be able to buy a home for many years, nor will you have much left in the way of a credit rating.  To add insult to injury, landlords will be extra cautious and probably require additional deposits in order for you to rent a place to live.  You might start being extra nice to your parents if they live in a big house and if  you are contemplating a short sale or walking away.  This last option should be viewed only after all other possibilities have been thoroughly researched and exhausted.

If the above scenario is all too familiar to you, and you don’t know what to do, give me a call.  I won’t promise to have all the answers for you, but I can at least point you in the right direction, whichever path you choose.  If you’ve already been down one of the paths and have emerged out on the other side, leave a comment sharing your experience with us.

When REALiTY BiTES, bite back!

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