Is there an alternative to a Short Sale in Kansas City?

Question: I was asked by a Kansas City homeowner if there is an alternative to a Short Sale? This Kansas City homeowner has heard many horror stories and they did not want to go through the long and tedious process of a Short Sale, but they felt they should do something because they were upside down on the mortgage loan and if they waited they may not have options in 2 or 3 years.

Is There A Short Sale Alternative for Homes Worth Less Than the Mortgage?

A website visitor asked: "My wife and I bought our house just before the real estate market crashed. We put little down on our home when we bought it.. We’re having troubles paying our mortgage and we feel that we will be missing multiple payments in the next year or so. Due to job instability, both my husband and I have poor  credit ratings so refinancing is not an option. We tried working with a loan modification company, but that failed miserably when the company disappeared with our money and basically getting us deeper in debt.. We love our neighborhood and would like to be able to make the improvements that our house desperately needs, but don't want to keep throwing money at a problem that may never get better in our lifetimes. Our home is worth significantly less than what we bought it for 3 years ago. Since we were unsuccessful in obtaining a Short Sale, is there an alternative for us?"

Answer: Being upside down in your home and having outstanding bills is stressful. It's almost as though you have a bowling ball attached to your leg and you can’t shake it off. There aren't any 10-step programs for homeowners who owe more than their homes are worth. There are 10 Short Sale Alternatives that you might want to consider if you decide that a traditional short sale is not for you:

Alternative to Short Sale Option #1

Continue to make your mortgage loan payments. By waiting you may either see the real estate market turn or your income increase. Yes, it is, even though it is an obvious solution, not everybody considers waiting to be an option. Sometimes, the first place an owner jumps to is dumping the house and sometimes it maybe to early.

By straggling along, maybe the market turns around and you will have enough equity to sell.  Have a professional full time REALTOR complete an analysis on your home to accuratley figure were you are equity wise. In addition, a professional full time REALTOR can keep you informed of all real estate activity in your area. Sometimes by timing the market, you can get lucky and escape your financial woes.

Alternative to Short Sale Option #2

Walk away from your home. This doesn't necessarily mean that you pack up your bags in the middle of the night, back up a moving truck to your front door and skip town before the neighbors notice you are gone.

It means you stop paying your mortgage loan. Ask your mortgage lender about a Cash for Keys program or any other similar program. Walking away from your home will typically affect your credit like a foreclosure.

Alternative to Short Sale Option #3

Payoff the mortgage. You maybe able to use retirement funds to payoff your mortgage loan to move and you have access to enough money to pay off your mortgage, consider doing so. Some people feel that when they make a promise to pay, the security for the loan is immaterial and the promise to pay is paramount.

You won't feel so badly about how much your home is presently worth if you don't have a mortgage on it.

Alternative to Short Sale Option #4

Refinance your mortgage through a government refinance program. Some refinance programs, such as HARP, allow homeowners to refinance the entire mortgage, providing your loan is Fannie Mae or Freddie Mac. Other programs allow for a refinance up to a certain loan-to-value percentage.

Bear in mind that while you might substantially lower your payment, you maybe also extending the term of your loan.

Alternative to Short Sale Option #5

Try considering a loan modification from a more reputable loan modification company or straight from your mortgage lender. I know you tried that through a loan modification company, but there are several loan modification companies that are being investigated for loan modification fraud. It's worth it to talk with your bank about a possible option for a loan modification.

The best of all worlds would be to get a program that reduces your principal balance, but I'm sorry to say that will probably happen when pigs fly. At least modifying your interest rate and mortgage payment may help.

Alternative to Short Sale Option #6

Ask your mortgage lender for a note modification. This is different from a loan modification but is similar. You are asking the bank to modify the terms of your note. Perhaps your mortgage lender will lower your interest rate on your loan, without refinancing and will retain all the other terms of your loan. This is similar to a refinance, but you will not be required to complete piles of paperwork. It maybe a simple solution.

Alternative to Short Sale Option #7

Buy a rehab home that you will not be upside down and rent your current home until the real estate market turns around. This is different from Buy and Bail. Some fortunate homeowners can qualify to own two homes at the same time. Typically, the bank will require reserves equal to 6 months of payments for each home.

If you can make the exiting home cash flow from a rental standpoint, all the better. Your new mortgage lender will only use 75% of the rent as income.

Alternative to Short Sale Option #8

Buy and bail maybe an option, although I don’t encourage it. Allthough this is not an option I endorse, it is an available option that sellers choose. It doesn't mean that if your bank can prove a Buy and Bail intent, that the FBI might not be able to build a case for mortgage fraud.

Some homeowners buy another home with the intention of renting out the existing home and then discover they cannot sustain the rental. Maybe the tenants stop paying or they can't rent the home and continue to make payments on a vacant house, which ultimately drains all of their resources. Is this Buy and Bail? Ask a lawyer.

Another option is if both you and your wife is not on the mortgage, the spouse not on the mortgage loan can legally buy another home, if they qualify for a mortgage loan.

Alternative to Short Sale Option #9

Sell the home with owner financing if your note and mortgage lender permits it. You might ask who would overpay for a home by buying an underwater home? Lots of people. They do it all the time through lease purchase options and lease option sales. Some of these transactions bet on future value, and that can lead to overpayment as well.

Just try to get some kind of money upfront so you have a little security that the home buyers will continue to pay. You will depend on the buyers to pay so you can pay your own mortgage. Get legal advice if you go this route because most existing mortgages contain an alienation clause.

You may also need an attorney to review the contract and protect you..

Alternative to Short Sale Option #10

Pay the bank to do a short sale. Why do this option? Many mortgage lenders who might be opposed to a traditional short sale will accept a short sale in which the homeowner will contribute to the bank's loss.

Some banks might accept 10 cents on the dollar or less. It's called a strategic short sale and doesn't necessarily involve a financial hardship like a traditional short sale. These kinds of short sales are typically for homeowners who have lost a large amount of equity in the home.

Hope these 10 Short Sale Alternative Options help. If you have comments or questions, please feel free to comment on our blog or contact the Dowell Taggart Team directly.

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Blog post written by the Dowell Taggart Team of RE/MAX Premier Realty 

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