It is a very common battle we encounter everywhere these days...on television, at parties, in your local Starbucks.  Homeowners who were responsible and got into affordable homes and affordable mortgages are short on patience with talk of bailing out homeowners who can't make their payments. This is completely understandable.  Is their argument valid?  On the straight assumption that they were responsible and no homeowner currently in trouble was similarly responsible...of course, their argument is very valid and they should be angry about the dialogue.

Unfortunately, the problem is much deeper and complex than that in the Jacksonville real estate market and other real estate markets around the country.  This is a general discussion not specific to the Jacksonville Real Estate market.

We need to examine what happens once a homeowner gets in trouble and the resulting effects on everyone. 

Depending on the homeowner there are different things that we see happening.  Some just quit caring about the condition of their property and it becomes an eyesore in the neighborhood.  Some yards are overtaken by weeds until there is no grass left and the weeds become tree-like.  To charge a homeowner a fine when they already have no money left is not an effective deterrent.  They don't have money to pay the fine and the HOA fees usually go late before the mortgage does.

HOA or Condo Association related problems begin to occur.  Many times the homeowner quits paying HOA dues.  Once this happens all homeowners suffer because there is less money coming into the HOA to take care of the facilities.  This can cause one, or a mixture, of two things.  Your HOA dues may rise.  Services may be cut to account for the decreased inflows while you pay the same fee.  Sometimes there will be some mix of the two options.  In any case it's not a favorable outcome for you.

That homeowner then may try to modify their mortgage(s) with the lender.  This is a largely unsuccessful process although there are some exceptions.  Many lenders have not adjusted their process to the market conditions or the current reality of what banks are dealing with.  Most homeowners are not going to benefit long term by a few late payments being tacked on to the end of their mortgage.  If they couldn't pay the mortgage for the last few months, how is that going to enable them to pay next month?

So what to do?  Some just give up, live in the house "free" for as long as possible then let the bank take it at the end of the process.  An increasing amount of homeowners decide to try to sell the home.  Most homes bought within the past 5 years or so no longer have a fair market value sufficient to cover the liens and closing costs, unless there was a large initial down payment.  The homeowner will usually need to attempt a short sale.

Here's where we get into the crux of the problem. 

Whether they successfully short sale or whether their home goes into foreclosure then back on the market, this is problematic for other owners in the neighborhood, including the highly "responsible" homeowner who wants the "irresponsible" homeowner to pay.

Short sales and foreclosures, when done correctly, are priced at fair market value.  Unlike straight resale properties, they are unrestricted by what is owed on the home.  Once a price is put in a short sale, if buyers do not come, the price should be reduced if the listing agent is doing their job.  The market is rejecting the price and that's what fair market value is, the price at which a willing buyer and willing seller come together.  As a result, the price on short sales and foreclosures are subject to frequent price drops until the home is sold.  The next short sale or foreclosure that comes on the market will be priced better than the other ones that are already sitting out there and so the cycle goes.

The value of your home, whether you are responsible or not, will continue to decrease until something breaks the cycle.  The hard line of not helping those who are in trouble is a little bit like cutting off your nose to spite your face at this point in the large cycle.  When your neighbor is "punished" by losing their home, you are also punished with them.  Fair?  No, but it is reality. 

There are a few things that can happen, either alone or in combination, to help break this cycle. 

  • More buyers have to enter the market now.Homebuyers need to begin to take advantage of the incredible deals that are out there for the taking.
  • More banks have to lend money with fewer restrictions than currently exist, not more, for refinances and new purchases.
  • The inventory of distressed homes has to decrease. This will happen as more people are able to modify their mortgages, find new jobs and correct other factors that have caused the hardship. The reality is that the majority of delinquent homeowners may have been entirely responsible when they bought the home. How do you continue to pay your mortgage when you have been laid off or your income has been drastically reduced. Or what if you are relocated and have to sell your home you bought 2 years ago that is now worth $100,000 less now than it was then? Do you have any option than to try to sell short for less than what is owed to the bank? Either way, it drives down the prices of area homes.
  • Banks have to be willing to realistically and meaningfully modify mortgages instead of using the money being given to them by taxpayers (against the will of most taxpayers) to buy up other banks and to give their executives raises which is largely what the money has been going to if you have been following the news. Some of the banks who have gotten the largest bundles of money are the most impossible to work with on modifications and short sales.This just means they are going to be asking for more money because the underlying problems are not being fixed. It's like having a leak in your gas tank. You can keep putting gas in the tank, but until the leak is fixed, you are always going to need a constant fill-up.
  • Banks have to quit doing things like refusing to talk to you about a modification until you are 90 days late, or refusing to modify your loan because you make too little money each month. If you made enough, you probably would not need the modification, right?
  • Banks have to speed up the short sale process. Some have gotten really fast and efficient. Others are still highly challenged in their capability and understanding of dealing with short sales. They have to understand that buyers don't care if they have thousands of short sales they are sorting through, so they need to quit whining about that and figure out how to make their process work more efficiently. A buyer will eventually walk if the bank does not process the short sale fast enough. In the meantime, the homemay have become worth less than when the offer was submitted to the bank which means the bank will lose even more money.
  • More buyers need to buy short sales instead of waiting until the homes are foreclosed.Do not be discouraged from buying a short sale becausean agent, or your brother, or your neighbortold you they never go through. They DO go through and they are usually great deals for buyers. In our option a short salepresents a better opportunity for a great deal than a foreclosure.

If you find yourself in a situation where you have to get out from under your home, we can put it on the market and help you attempt a short sale.  We can also help buyers purchase short sales or foreclosures and get a great deal.  There are parameters for what the bank will take for the short sale to be successful.  We know how to put together a great offer that the average bank will accept because it mitigates their loss. 

If you are a responsible homeowner who has always made their payment on time, you are greatly appreciated and should be commended.  But please realize that regardless, you are being hurt by the current state of things.  Your fair market value has fallen just like the buyer who hasn't made mortgage payments in six months.  To help that homeowner is to help yourself, even though it's not fair.  Just be aware that everything is intertwined and your home value is not independent of everyone else's value no matter how much that may unequal and unfair.