I’m Caught, Now What?

So, you’ve realized you ‘re caught in the housing bubble. You’re probably thinking, “Now what do I do?” If you’re caught in the housing bubble because you lost your job or have experienced a significant decrease in pay (maybe a paycut or forced un-paid vacation), please read the following post: “I Just Lost My Job, Now What?” I have a special set of instructions for you! Otherwise, read on.

Step #1 – Create or update your monthly budget

If you haven’t done this already, you must. A financial worksheet is going to be your tool to help you determine where you stand financially. In addition, your lender is going to need a copy of your financial worksheet in order to work with you. Before you pick up the phone to call your lender, make sure your worksheet is done. To get a copy of a financial worksheet for free, be sure to sign up for my newsletter and I’ll automatically send you a copy!

Step #2 – Determine your overall goal based on your financial worksheet

How far off is your monthly income from your monthly expenses? Are you in the red? Can you afford your home if you hunkered down, reduced your spending and received a reasonable reduction in your mortgage payment? If so, you most likely will want to pursue a loan modification with your lender(s). Remember that most lenders offer short term loan modifications by temporarily reducing your interest rate (3 – 5 years), thereby reducing your monthly payment for that length of time. I personally have not heard of any lenders currently offering principal reductions as part of a loan modification. But, it doesn’t hurt to ask. If you are seeking a loan modification please, please please do not fall victim to the scams that are out there promising principal reductions or guaranteed loan modifications for an upfront fee. You can work with your lender directly to obtain a loan modification. It may take some bulldogged persistance, but you can negotiate directly with your lender yourself.  For more on pursuing a loan modification see “Do It Yourself Loan Modifications.”

Step #3- Know your options

If you realize you can’t afford your mortgage by cutting back your expenses and by getting a reduction in your monthly payment, you have the following options:

• Short Sale: a negotiated settlement in which your lender(s) agree to accept a payoff less than what is owed to them on the secured Note.
• Deed-In-Lieu of foreclosure: a process where the borrower deeds the collateral (the property) to the lender and thereby avoids foreclosure.
• Foreclosure: a legal process in which your lender repossess the property after it falls in default.

Step #4 – Call your lender

If you simply cannot afford your mortgage no matter the cuts you make, you need to pick up the phone and call your lender to discuss your alternative solutions. Most likely, your lender will recommend a short sale. This is by far the best option to pursue rather than a Deed-in-Lieu and Foreclosure. However, all three options have credit and legal consequences so be sure to contact your qualified professionals for specific advice. Your lender will usually do a phone qualification where they verbally run through your situation and your financial worksheet. That’s why it’s important to have it done before you talk to the lender so you can give an accurate accounting. From there, they will review your options and give instructions to you on what documentation they will need. For specifics on the short sale process, click here.

What you’re going through is not easy. It’s quite stressful and many of my clients have told me that it feels like a monkey on their back. However, they all say that once they took control of the situation, contacted their lender and set out on a course of action (whether it’s a loan modification or short sale) they all felt much more positive about their future and they could finally move on. It also helps to have the assistance of a team of professionals to assist you. If you’d like a free consultation with a highly qualified Realtor make sure to contact my team through our Contact Us page. Even if you aren’t located in the State of CA, we can still connect you through our extensive referral network. We look forward to assisting you!