There are 3 ways to get a spouse off of a mortgage or home loan. They are re-financing, loan assumption or sell it. If the home is worth more than the mortgage, you can sell it & pocket the proceeds as a part of your divorce agreement. However, when the home is worth less than its current market value, there are no proceeds to split.

In this case, a short sale is a possibility. In order for a lender to agree to a short sale, there must be some type of hardship. A divorce is a common hardship though sometimes, an ex-spouse may have enough money to pay the monthly mortgage payment on their singular income. In this case, does a hardship exist?

If an ex-spouse has enough monthly income to cover that mortgage payment but the home is worth less than is owed on the mortgage, refinancing is not an option to remove that exes name from the debt. Most lenders know that an ex-spouse who wants to be off of the mortgage will often be willing to take any means necessary to get their name off of that mortgage, including foreclosure. As a result, lenders will typically accept divorce as a hardship and an acceptable reason to agree to a short sale regardless of the income of the individual exes. This varies by lender of course as debt settlement is at the lenders discretion and a short sale is a debt settlement.

One other possible option is loan assumption. You would want to speak with your lender to see if this option is available to you. This option assumes that the homeowner who wants to stay in the home can qualify for the loan assumption. Of course, if the home is worth less than the mortgage, most exes would rather short sell the home and move on rather than take on a debt that is upside down.

One reason is unemployment. Just this week I learned that my daughter and a close family job both got pink slips from 2 different companies. New homeowners are not exempt from a lost job and job loss is a primary reason that people can no longer make their mortgage payment.

Another reason could be that since property values have been declining for the past 5 years, some homeowners make a business decision to just let the house “go to foreclosure”. Though that may seem like a good idea today, there will be implications for those who make that decision for the rest of thier lives.

The media tells us the economy is better. If you lost your job and your home value is dropping, that doesn’t seem “better” to you. On the other hand, it is an election year.

Last week we had one such case. The homeowners filed bankruptcy in hopes of saving their home from foreclosure. Previous attempts by the bank to foreclose were stalled due to the looming bankruptcy. Then we received notice that the sheriff was going to forcibly evict the prior homeowners.

It turns out that the courts rejected the request for bankruptcy protection and sadly the sheriff was the first to tell these poor prior homeowners. Their bankruptcy attorney should have told them about the denied bankruptcy but sadly that did not occur. So the locks were changed on these prior homeowners’ home as they made hasty arrangements to get their furnishings out in a panic.

If you are delinquent on your mortgage, things do not have to turn out like this. Find out the facts so that you can make informed decisions about what to do next.

The article goes on to state that some homeowners could see their mortgage drop by tens of thousands of dollars. For example, if you owe $400,000 on your home and they reduce your principal balance by $20,000 to $380,000, that’s awesome. But wait, your home is only worth $280,000 in this market. So your payments will go down but you will still be making payments on a $380,000 loan for a home worth $280,000. What a deal!

Sac Bee goes on to state that Freddie Mac and Fannie Mae are not part of the settlement and their holdings account for about 60% of the mortgages in California. That means help for only 40% of Californians, at best. The settlement covers loans serviced by Bank of America, Citigroup, Wells Fargo, JPMorgan Chase and Ally Financial/GMAC. So if you have loans with anyone other than these 5, it appears you are not part of the settlement.

With this latest attempt to fix the home crisis, let’s take a short walk down memory lane. We had HAMP which was to help people get loan modifications, mostly with no principal reduction. How did that work? Less than 10% of the loan mods worked under HAMP. That means a 90% failure rate.

Now we have HARP coming out next month which will help borrowers who are upside down on their mortgage get the loan refinanced at a better rate. What’s the catch? You have to have been current on your loan for the past 6 months and have missed no more than 1 payment in the last 12 months. That leaves out most people who are in some stage of default.

This settlement can be good news for the few people it will help. Hopefully it will be more effective than HAMP was.

When a homeowner has discharged debts through bankruptcy, they often think that they have no further obligation for the home. A client recently shared with me that this was not so. He found the responsibility for paying the HOA dues remained as long as the home was in his name, even after the debt was discharged as a part of his bankruptcy.

When a homeowner is considering just letting the bank “take the home” (through foreclosure), it’s important to note that you have no idea how long the bank may take to foreclose. This could mean thousands of dollars of unpaid HOA dues that could become a collections item in the future against a homeowner. In my client’s case, it took 3 years after the bankruptcy discharge for the bank to foreclose on his home. You would want to check with an attorney for details about your situation.

The same may be true for water bills with the city or county you live in. The municipality often will not turn off the water, even if you request a discontinuation of service. This means the water bills can continue to accrue against a homeowner.

Because both HOA’s and the city or county can put a lien on the home for unpaid invoices, you may believe you are clear if there is no lien. While they can put a lien on the property, if there is a foreclosure, most liens are wiped out. This can pave the way for the HOA, city or county to come after the homeowner personally for any outstanding money owed them.

With short sale approvals on the rise, many people are choosing to do a short sale on their home rather than get foreclosed on or doing a deed in lieu of foreclosure. Why? A short sale provides more control over when the home gets out of a borrower’s name. It also makes sleeping at night easier.

The percentage of REO (real estate owned also known as bank owned) sales in Folsom were down year over year in 2011 as were traditional sales. What does this suggest? Short sales are becoming a bigger part of the Folsom market and that trend is expected to continue through at least 2013.

Only 23.6% of home sales in 2011 were REO and 48.2% of 2011 home sales in Folsom were traditional. If you want more information about how a short sale may affect you or someone you know, check out our Short Sale FAQ’s.

If you are a seller considering selling your home in 2012, what should you know?
1. How much “shadow inventory” is in your immediate area? In El Dorado Hills there are 286 homes in some stage of foreclosure today according to Foreclosure Radar. If your home is in an area where lots of these homes are within 1/2 mile of your home, you may want get your home on the market before they do. Why? Because competition typically brings prices down, not up and you want to most money possible in this market, right?

2. What are interest rates going to do? With rates at 40 – 50 year lows, it’s far more likely that interest rates will go up not down. As rates go up, buyers can afford less house. As what they can afford goes down, there are fewer buyer’s in the market for homes in El Dorado Hills because our prices are among the highest in the Greater Sacramento region. Having lots of buyer’s fighting to get your home can help drive prices up.

3. Where should you price your home? Contrary to popular belief, it’s hard to price a home too low because the market will drive the price up. Here’s an example. A home is priced below market values in a nice community that many people want to live in. The home will likely garner multiple offers which can drive the price up to “market”. In fact, some banks use the strategy of pricing below market all the time to get multiple offers. You and your Realtor should work together on a price that will cause people to come look and ultimately make an offer on your home.

If you are curious of how the distressed market (short sales and bank owned homes) could impact your traditional sale, check out our Buyer FAQ’s

Some will get a second job and some will use credit cards to make ends meet. Let’s say there is a loan on your home for $400,000. You can barely make the payment but you love the home so when you want to buy Christmas gifts, you put them on credit cards.

Then somethng happens to your washing machine and you have buy a new one. Then your car needs a new transmission. On top of Christmas and the new washer, this car repair is just too much! Now instead of owing just $400,000 on your mortage, you now have $410,000 in total debt. If you knew the value of your home was just $250,000, meaning negative equity, would you keep piling up more debt?

If you find yourself in this situation, at least find out what the current value of your home is. Having the facts can help you make the best decision in a difficult situation.

On the other hand, if you can make the payments and you love your home, the homes value doesn’t really matter, does it? In fact, maybe it’s time to invest in more real estate to capitalize on a “buy low” strategy.

I. Ask agents what their communication policy is during the short sale process. Experienced short sale listing agents keep both buyers and sellers informed about where they are in the short sale process. Just because the short sale process may last for a few months, you should still know where you are in the process and what is likely to happen next.

II. Expect an agent to request financial documents from you up front. Lenders who are considering short sales have a specific process that they require. Agents who routinely represent sellers attempting a short sale know this and collect documentation up front so as to not slow down the short sale process once an offer comes in.

III. Ask an agent who decides which offer to submit to the bank. The banks are buried in short sale files and they rely on the listing agent to submit the best offer to them. Submitting multiple offers to the bank simply slows down the often already slow process. The bank is not the owner of the home, the seller is. Consequently, the seller, working with an experienced short sale agent, will decide which offer to submit to the bank for consideration.

If you want avoid being a short sale guinea pig, choose an agent that demonstrates experience in short sales. Though everyone who has a real estate license CAN list a short sale, sadly many agents stop with the listing because they simply don’t have the skill and experience to get the transaction completed.

The important thing to remember in this situation is that most mortage notes include the words “jointly and severally liable”. This suggests there is responsibility as an individual and as a couple to pay the loan back. Consequently, a bank does not remove you from the obligation on the loan payment just because the marriage didn’t work out.

If you are pursuing a loan modification, a pending divorce can hurt your ability to get an approval because now there is potentially less income coming into the home with which to pay bills.

If you are pursing a short sale, a pending divorce is considered a hardship for the same reason, and consequently a divorce could be the reason that your short sale gets approved.

For this reason, it’s important to know what your desired outcome is for your home before you approach the bank for any type of change to your mortgage loan. Once you know your goal, talking to your lender is a great next step to find out what your options are for a loan payment that has become unmanagable.