Expert: John Hendricks - 11/2/2008

Question
My sister and I purchased a home in 2003, we were in an interest only loan, were late on a payment and in 2005 had trouble refinancing.  To help us keep our home our parents refinanced for us.  Since then our house has lost value, are payments went up and my sister could no longer afford to pay.  I am carrying the burden of the loan.. I want to get out of this house, but am not sure how to do that without impacting my parents home (since our loan is in their name).. please help we haven't been late on a payment since it has been in their name.. we owe 455000 house valued at 387000 (in solano county)

Answer
Dear Shaunte:

Thank you for your question…

You currently are in a similar position many home owners are currently experiencing…high mortgage debt and loss of substantial value since you have owned the home. There are a few recommendations I can pass onto you in hopes that you can help a bad situation.

1.   I don’t know the details of how your parents participated in this loan, such as did you transfer the property to them and now renting and paying the loan payment?  If they are co-borrowers on the loan, then you can step in and contact the mortgage holder. If they are solely on the loan, then it would be their responsibility to contact the mortgage holder. Depending on the situation your parents are confronted with, they may try and work with them to restructure their loan to make the payments more affordable. Please note that there are a number of circumstances I am not aware of in your parents participation, therefore my answer to this part is limited.

2.   I recently read on a site where there is assistance to homeowners who are facing loan defaults and foreclosure. Although you made no mention of defaulting on your parents loan, the site may be a resource for further information. The site is http://www.inman.com/news/2008/10/2/hope-homeowners-program-launches

3.   Contact a Realtor in your area to give you a comprehensive view of what your true value of your home is currently. It sounds like you have an idea of your current home value, but having a great Realtor provide you with up to date information on your property, and current market conditions in your neighborhood would be valuable at this time. They could also help you determine the right time to sell if that is the option you choose to take at this time.

4.   The Realtor you choose should be familiar with “Short Sales”. There are Realtors that specialize in short sales, where they market your home at a price that will be lower than your mortgage, usually current market value, ($387,000) and with an acceptable offer from a buyer by you that would be subject to the banks acceptance, would negotiate with the mortgage holder and buyer to sell the home at a loss to the mortgage holder which would include the Realtor fees. There are some potential problems that may occur with a short sale for you as the seller, so ask the Realtor to disclose what those shortcomings may be prior to listing your home as a “Short Sale”. Also make sure you also understand the terms and conditions that the lender may be expecting from you before accepting the “Short Sale”. The Realtor should add a condition in the purchase contract that would allow you to review and approve or disapprove the terms and conditions the mortgage holder is accepting the offer under. In other words, what would be your future financial responsibility or liability to the mortgage holder if they were to accept the short sale if any?

5.   Lastly, you can always wait it out in hopes the real estate market will turn. California has a great history of a rebounding real estate market, and it will turn again, but ‘when’ is the question. I have had discussions with lenders, Realtors, and read numerous articles that all suggest the turn won’t take place until the early part of 2010 and an outside possibly it will not recover until early 2011. Also remember that it will take time for the housing market to recover to the levels in earlier years.

Please remember having limited knowledge with your situation it prevents me from being able to give you a thorough explanation. Once again I would recommend you contact a local Realtor who can help you through the process of what you are trying to accomplish after reviewing all related information. Thanks again for the opportunity to help you and good luck…

Warmest Regards;
John Hendricks