Selling Your Property in a Financial Distressful Situation: Communication is Key

Selling your property under the best of conditions can still leave many homeowners feeling a bit stressed as well as vulnerable: promising offers that fall apart, price reductions leaving less money for next property purchase, and opening the house (and valuables) for strangers to pick through are just a few of the challenges a seller will face.
Quadruple that stress level when there are some financial distress factors added to the equation, especially for those that do not have the time to list and sell their property with a real estate agent. This type of situation can make a seller feel alone, isolated, and as is often the case, ignoring the problem hoping it will just go away.
Quite the contrary, however, communication is the key to relieving yourself of a property that has become a problem. If you find yourself in a financially challenged position, your lender should be your first call. Let me give you some background on why I believe this to be the case.
I had done some work with a loss mitigation company a few years back. A mitigator acts as a facilitator between the borrower and the lender. I was employed to make direct contact with the borrower because letters and phone calls placed by the lender were usually ignored. The lender is reaching out to the borrower to find out what happened and to explore solutions to the issue, but the borrower ignores these attempts at communication because they believe the lender is chasing them down for money. This miscommunication is an ongoing issue that usually leads to foreclosure.
Once I made contact with the borrower, I found that most of the home owners wanted to stay in their property. No problem, the lender wants you to stay in the property as well - if it makes sense. Many borrowers were shocked to learn that the lender was willing to work with them through their financial difficulties.

Was this the act of a well-trained loan modification expert? Obviously not, I simply made contact with the borrower and placed a call to the lender initiating dialogue between two parties that really want to avoid the same thing - foreclosure. Let's face it, when mortgage payments stop, the property becomes a burden to the borrower and a liability to the lender. The two sides really aren't that far apart, in fact, the borrower and lender are really sharing the same boat each looking for an acceptable solution.
We already know why you don't want to have a foreclosure on your record, that's a serious and prolonged setback on your credit. Let's look at the lender's reasons to avoid foreclosure: the moment you stop paying the mortgage, your property becomes a "non-performing asset." An NPA isn't generating any money for the lender, money in which the bank can then use to make more loans. Banks are in business to make money on loans, not to own real estate.
Now your property is a liability, and if the miscommunication continues, the lender must foreclose and the property will become an REO (real estate owned). The lender will be required to increase the amount held in reserve to cover the costs associated with the REO. Not only is the lender missing out on your payment, they are now further restricted from making more loans because of the increase in reserves, not to mention the time and cost associated with pursuing the foreclosure process.
This is why a lender will be very interested in speaking with you - not to make threats, but instead to simply ask what happened and what can we do?
Let's assume you want to stay in the property, the lender will then consider a modification of the current loan. The type of loan adjustment depends on your issue(s) and current financial condition. For example, if your reason was a loss of job but now you are employed again, a short term forbearance will be considered. This will entail a repayment of the missed payments over a short (3-9 months) period of time. If your issue was a bit more permanent like divorce, death, disability etc, then a long term loan modification - an adjustment to length and/or terms - will be considered.
A loan modification is not the only option - yours or the bank's. If the numbers and terms make sense to the lender (and the investor backing the loan) then a modification will be pursued. If the modification doesn't make financial sense, then the lender will begin looking at other alternatives, and so should you.
What happens if a modification cannot be worked out - can you still sell the property? Yes you can, and we will discuss some of the available options in our next article.