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Home Real Estate Market Remains Stable in a ...
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Selling a Home After Loss of a Job
Showing the Open House
Selling a Home After Loss of a Job
by Dr. Oneida Cramer
If the jobless rate is at 5.4%, as reported for Dallas in September: yet that translates into 100% unemployed for you, how should you manage your home mortgage?sell or hold?
?One of the toughest things I ever had to do was explain to a couple that I probably would not be able to sell their home in time to stop foreclosure,? wrote Fred Cunningham, Jr. of Cunningham Real Estate in a letter to People Newspapers. ?For the first few months, they made their house payment on time. Then they skipped a month and paid the next month. Then they skipped several payments. After about a year, they received the foreclosure note that would take effect in thirty days. That?s when they thought seriously about selling their house.?
?Unfortunately, many people end up defaulting on a loan and the mortgage company has the right to recover,? said Gary Morris of Morris Financial Service. The worst part of that whole situation is that the homeowners ultimately pay a lot of extra fees. These are costs that are assessed by attorneys who put them on notice and provide demand for the payment. Any equity that might be left over can dissipate pretty quickly. In theory if the home is foreclosed by the mortgage company, the steps of the county courthouse, or even the municipality and if there is any excess funds from the amounts that are owed, that amount does go to the former owner. But, if the owner had deferred a lot and incurred penalties, the incurred additional interest gets dissipated into the equity.
?So, look at those assets that are not ill liquid, but take a long time to convert to cash,? Morris said. ?If you aren?t in a position where you are able to do something else, the quicker you sell a big asset like a home the better off you are.? Waiting until the 30-day foreclosure notice is too late to begin the mortgage process, which in ideal circumstances can take a minimum 30 to 45 days. Clearly housing is an item that sometimes?particularly when the economy ebbs in recession and people become unemployed or fear unemployment and there is just a general concern about the economic future?housing begins to decline in sales of new and used homes. Then, the average mortgage-processing period can take longer. So, Morris suggests 90 days to accommodate the sale.
?But before you sell your house, there may be some other avenues that you can explore in terms of trying to restructure your debt, get on a program that might allow you a low monthly payment, that might allow you to cash out some of your equity,? said Bruce Katz, mortgage broker with Executive Home Mortgage Co., Ltd. ?You should contact your service and let them know what?s going on. They will make a note that you?ve been proactive in contacting them.? Plus a good mortgage broker can sort through the options and prepare a program of recommendations. Ideally, contact your broker as soon as possible, even before termination, if you have the luxury of that knowledge.
?Every situation is different and every set of circumstances is different,? Morris said. ?The crucial thing would be to plan in advance to the extent that you can recognize that that always can?t be done. In other words, everyone should contemplate in advance of, not only lay off, but other types of events with some liquid emergency type fund available. In general, we look at a range of from 3 to 6 months as the amount.?
?Granted that most people in the last several years have (because employment has been strong, if you lost a job or the company moved, you moved fairly quickly to another position) not necessarily maintained an emergency fund. In fact, it?s argued that the current debt level that Americans have is significantly greater than it has been in many, many years. And savings rates have been extremely small.?
?A significant number of people have accumulated qualified plans, 401(k), IRA, or things like that,? Morris said. ?Certainly, I would look at that as a source of cash flow even though there are penalties to take money out of these vehicles. These are ways that may make sense in the short run, maybe even sense in the long run, depending on your age, maybe to pay it out notably over a period of time so you don?t have those premature distribution charges.?
?If you have an investment portfolio, (This is one we do run into with some frequency?people with investment portfolios that have declined in value because the stocks or mutual funds have declined; but the holders don?t want to sell their equities in advance because they?re selling out at a loss.) you might want to do a margin loan against your account,? Morris said. Here, you borrow against what you have; you don?t need permission, and margin loan investment interest is tax deductible.
People over 62 can use some of the equity in their homes in a Reverse Mortgage in order to make regular mortgage payments until they find employment, suggests Morris. Reverse Mortgages passed the 76th Texas Legislature in 1999, were approved by voter referendum in a constitutional amendment on November 4, 1999, and were first funded this year in January 2, 2001. Basically, the homeowner borrows against the accumulated value of the house; so mortgage increases. But, in being designed as a financial resource for retirees, repayment is not an issue. For more information call 877-768-3927 or visit web site at www.texasreversemortgage.com.
Mortgage companies vary considerably in policy. Since mortgages have moved away from the neighborhood savings and loan companies, service companies have popped up to service mortgages for fee, and mortgages are often packaged and sold to financial institutions, according to Morris. Roughly 50% of the mortgages initiated are sold to other mortgage companies; so your current mortgage company may be almost anyplace geographically.
?But, if you are in a position where you are unable to make payments, you really, really ought to tell the mortgage company,? advises Morris. ?If you call the 800-number that is on your monthly payment, you?re probably not talking to a person that will necessarily be of that significant amount of value. Hopefully, he/she will pass you to someone else. But, I think it always makes sense to write them a letter. Put in writing?I?m unemployed, and we want to stay in our house, but we are unable to make the full payment; basically, ask them what will happen.?
?They are not going to forgive anything,? Morris said. ?But at least they will respond and tell you what the situation is.?
?One of the blessings, one of the things that one can learn by looking at a recession, that we have been in is that you need to be prepared for lots of different potentials, one of course is unemployment.?
Dr. Oneida Cramer
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