Short sales and what they mean for the American Dream
For too many homeowners in this worst of all possible worlds, the outstanding mortgage taken out in 2006-09 is more than the current value of their home. Payments on mortgage interest rates of 7 and 8 percent – or more – added to Private Mortgage Insurance (PMI) are ridiculously high.
While mortgage remains stable, the un-stable home values have dropped anywhere from 35 percent to 50 percent and more.
The stock market rebounded, many builders survived, but the broken pieces that remain are millions of homeowners weighing tough decisions: keep struggling to pay these irrational mortgages on former castles – now financial prisons or walk away?
One missed mortgage payment leads to threatening phone calls. Remember that friendly face behind the mortgage desk when you signed the loan contract? He’s been replaced by the judgmental voice of some clerk/jerk for some unknown ‘lien-holder’.
Here’s a kindergarten-level explanation of how this came to pass: The good loan you took out with your good credit, was then “bundled” with bad loans and sold off to different lien-holders, a three-headed monster Wall Street created called ‘credit-default-swaps.’
Your excellent credit and good-faith loan was gathered in with a bunch of “stated income loans,” aka known by lenders as ‘lyer’s loans.’ “What do you wish you earned?” the mortgage brokers asked the borrowers. That’s the amount written on the “income” line. Really!
Unbeknownst to you, you actually were a part of the debacle that brought this nation to its knees. Your good loan added credibility to those monsters.
The resultant to mortgage crash is that today, we’re helping qualified buyers open doors to buy their dream homes at historically interest rates and prices. But that’s over-shadowed on the other side of that same door: the backs of families walking away from what had been their dream home only a few short years ago.
A teddy bear in dark corner of a closet, a baseball under the back deck, a package of birthday candles left behind.
Before the locks are changed, before the seller’s belongings are moved to a rental house, there’s a painful process that chips away at the very core of these families.
“Short sale” the listings are called, meaning the sale price of the house will not pay back the contracted mortgage and there’ll be some negotiating with the lien-holder to accept less than what is due on the note.
The families have already lost all their equity prior to the lien holder’s net loss. Our home equity has been for most Americans their one ‘retirement account.’ Now they’re leaving the neighborhood, changing schools, sharing bedrooms, doing with less.
Whether beautiful, average, or very simple homes... they’ve always provided more than just shelter. Since the early 1950’s, owning your own became a great part of the vernacular of “The American Dream.”
Breaking that dream apart leaves homeowners feeling like failures. You’re not! However that’s a difficult conversation to have with “self” when your life is breaking down.
“Banks did this. Wall Street did this. Government deregulation did this.” These are rather meaningless words to breadwinners who’ve always paid their bills, always done “the right thing.”
The decision to walk away from that American Dream and not “do the right thing,” – to empty the house, lock the door for the last time and move on to the unknown has become a continuing American tragedy – and not just in Cleveland or Detroit, Mich. It’s being repeated over and over again in “Mukilteo, 9th Best Community in the Nation” and in Edmonds “For a Day or a Lifetime.” Not in these families lifetimes.
Real estate brokers have the joy of opening the doors to thrilled new owners. But we’re also are finding those left behind teddy bears and birthday candles. As an industry, we need to learn – if it’s a teachable skill – to respectfully balance buyer’s joys with seller’s losses.
Unlike bank-owned homes (already foreclosed and vacant), short sales often have the current homeowners still living life in their home. Courtesy, kindness, compassion and occasionally, when possible, a word of encouragement that this is not your fault; you did not make this happen!
In this economy, there should be no shame in having to sell on a short sale or in a foreclosure; loss, stress, sadness, certainly, but not shame. The kindness of a neighbor, (we’ve become so insulated to our next door neighbors) and the encouragement of friends can make an awful moving day a bit easier.
The requirement or the decision to walk away from your dream is not an easy one, but for many, it’s the necessary “right thing to do.”
Staying with a mortgage that is burying a family’s life, with very little (or more often than not, no) cooperation from the far-removed lien-holder, is often the right decision. Walking away to survive, for survival is still good.Elizabeth Erickson is owner and designated broker of Gallery Homes Real Estate. Contact her at firstname.lastname@example.org or at the office: 425-212-4300 or direct: 425-508-1405, or go to www.galleryhomesre.com.