What is underwater mortgage?

This is a situation when you’re not able to pay on your mortgage and the mortgage debt is more than the value of your home. This situation doesn’t really arise on your first mortgage. But if you take out a second and a third mortgage, it may happen. Usually this situation may or may not be your fault. Sometimes due to the economic situation in the country, the value of the property in your area may depreciate and that may give rise to underwater mortgage situation.

How can you get rid of underwater mortgage?

You must try to get rid of your underwater mortgage as it may result in worse situation. There are quite a lot of ways you can avoid this underwater mortgage and build the value on your home. Take a look at the ways you can get rid of underwater mortgage and their effect on your credit score:

1. Short sale

This is one of the ways how you can get rid of your underwater mortgage. If you see that the value of your property is less than the amount you owe on your mortgage, you can opt for this option. In this, the homeowner decides to sell the property to the lender for less than what he owes on his mortgage. In some states, where the non recourse loan is applicable, you needn’t pay the deficient amount. The lender can take only the collateral and not anything else.

The positive aspect of this option is that you can avoid foreclosure and the credit score that is affected is 80 to 100 points. You may improve your score in 1 to 2 years. After that, you may take out a loan or mortgage.

2. Deed in lieu foreclosure

Apart from short sale, you can also go for deed in lieu foreclosure to get rid of your underwater mortgage and foreclosure. In this, you can deed your home to the lender in order to avoid foreclosure. The lender sells off the property to retrieve the unpaid amount of the mortgage (as much as he can). You need to sign a lot of legal documents when you’re opting for a deed in lieu.

This also gets rid of your unpaid mortgage debts and you can avoid the foreclosure proceedings too. The credit score gets affected a lot. The score goes down around 250 points but you need not pay the deficient amount. For both the cases of short sale and deed in lieu, you need to list your property before 3 months. You need to show that you’re facing financial hardships and then you’ll be taken into account.

3. Loan modification

This is better than the above two options. You can request your lender to modify your mortgage in such a way that you can make payments on it. You retain your property and you also get to increase the value for future use. The lender after reviewing your financial hardship can agree to reduce your interest rate or can increase the time limit. In really bad situations, your mortgage amount can also get reduced. But this usually doesn’t happen. You can avoid foreclosure and can also get out of underwater mortgage.

The credit score that gets lowered is also not that high. Around 150 points gets deducted if you go for loan modification program. Once you improve your credit score, you can become eligible for another loan or a mortgage.

Foreclosure can also help you get rid of your mortgage payments but the credit score gets damaged a lot and to become eligible to take out a loan or a mortgage, you need to wait for 3 to 4 years. The points that are discussed above can help you avoid foreclosure as well as help you come out of underwater mortgage.

It’s all about their mistaken belief that the best and surest way to a big payday is by identifying a seller, listing his property and then finding someone to buy that property at a price that will generate the highest commission. Even better if the agent happens to represent both the buyer and seller and won’t have to split that commission with someone else (although such dual representation is not legal in all states).

The quicker the transaction happens the better, so the agent can identify another home for sale with a potential big commission, and the cycle repeats itself. Again and again.

What’s Wrong With This Picture?

First of all, it’s about selling homes first and serving people second, all the while trying to maximize commissions. It totally disregards the potentially bigger commissions that an agent can make by understanding and serving the investor-buyer.

Investors require a different degree and depth of attention from an agent than does an owner-occupier. The investor represents problems for many real estate agents who “don’t do (investor) math”. Many agents also assume that investors want deep discounts and take too much time to make up their minds. This due diligence is often mistaken for indecision, and it is something most real estate agents are not trained to support.

This is not to say, however, that there are no expert real estate professionals who serve investors effectively. They do exist; it is just that they are the exception.

Relationships or Transactions?

So where do the potentially bigger commissions come in? It’s all in the math. Most homebuyers buy or trade up homes once every five to seven years, which makes repeat business distant.

A relationship with a serious investor, on the other hand, can be recurring and generate three to four times the commission revenue that an agent recieves from that one homebuyer transaction over the time that the average owner-occupier holds one house. The active investor does 10 to 15 times the number of transactions in the same period.

Then the relationship gets more interesting because most successful investors are connected to a network of additional prospects and investor-friendly providers. For examples of how the homebuyer and investor markets differ, see the table below.

Fundamentals & Technicals

These deals do not come from the traditional “Honey stop the car,” open house, curb-appeal sales pitch. Investors can make decisions far more rapidly than most homeowners, as they are looking at the numbers, the investment and the exit scenario.

Historic home sale trends are pretty clear. According to the National Association of Realtors 2009 Second Home and Investor Study, slightly more than 20 percent of the home sales in the United States are made to investors. Our 2008 The Invaluable Investor Study placed this number at 28 percent. The NAR held at 21 percent for that year by analyzing mortgages.

Total investor sales for 2009 is not record setting, but it is among historic lows. Going forward, sales are expected to be a constant percentage of the market. As the market grows, so will this transaction volume.

Real estate is on sale, and an investor can buy positive cash flow inexpensively. This has not been lost on sophisticated investors or investment managers.

This investor wanted to cut down a tree to improve his curb appeal until he found out that local law required anyone cutting down a tree is then required to plant 3 trees… Wow, stiff but I like it!  Needless to say the investor opted to simply trim the existing tree.

I really think that banks, in particular those banks working on foreclosures, short sales and loan modifications, should be required to plant 3 trees for every file worked on and not approved.  I’m currently working on 3 loan modifications. I’ve had to refax the same documents multiple times because… maybe the T’s weren’t crossed correctly?  Then I call back the following week to follow up only to find out that I have to resubmit UPDATED docs because the first set is now outdated.

These institutions should be held accountable somehow for their wastefull practices and pure neglect for our natural resources not to mention the huge waste of the consumers resources… it is simply idiotic!  I have confronted them about this and they reply that they are completly electronic… they obviously don’t realize that the consumers are not typically as electronic as a billion dollar bank… we need to print a hard copy in order to fax it in!  And, they won’t except emails you have to fax it in! 

They should have to plant 3 trees for every file they start and don’t approve!