There are folks who say the worst of the housing market is over, and then there are people who strongly disagree. I’d like to offer a brief tutorial of the terms and confusion I’ve learned about through the process of trying to sell and buy a home currently.

#1. Underwater: This is used interchangably with “upside-down” and means that you owe more on your mortage than you are able to sell your house for. With the decline of the housing market, this term refers to A LOT of houses.  

#2. Short Sales: These basically suck. The seller wants/needs to sell the house, but is probably upside-down or underwater on the mortage (see #1). The seller has talked to the bank about their situation, a situation which is usually one that makes paying the mortage difficult if not impossible. Sometimes you have to stop paying the mortage in order to get someone at the bank to talk to you, and many times you have to already have an offer to show the bank before they will discuss the possibility of a short sale. Once you bring the bank into the mix, they have a say about what kind of offer you as a seller can entertain. And they are pretty picky about the offers, even rejecting perfectly reasonable offers, trying to hold out for more money.

As a buyer,  you can make an offer on a short sale, hear nothing for three to four months, and then get your offer turned down after all that waiting.

#3. Foreclosure: This is when the seller has stopped making payments on a house, and the bank is starting the procedures to take over the ownership of the house. It can be a long process to get to this point, with a short sale process beforehand, a mandatory six month redemption period, sheriff’s sale, and eviction notices. Once the house finally goes back to the bank, they usually take it off the market for one month, then relist it at a price they determine to be most likely to sell the place based on the comprable houses around it.

What people don’t know as much about, or at least I didn’t, is that when a house is a short sale, the bank can begin foreclosure proceedings simultaneously, speeding up the foreclosure process and surprising the seller.

The thing that has come to light in the past year, is that mortgages get sold quicker than umbrellas on a rainy day in November. Half the time, the actual current holder of a mortage can be very unclear and hard to trace. The advice I’ve heard in reaction to this is MAKE THEM (the whoever that wants to foreclose on the property) PROVE THEY HOLD THE MORTGAGE before you leave the property. The lady who lives next door to us right now has had her notices mailed to the wrong addresses and with inaccurate names. If the bank can’t prove they hold the mortage, they can’t legally take action against the owner.

#4. Buy and bail: This is a new-ish phenomenon where someone buys and moves into a different second house, then stops payment on the first house’s mortage. Sounds dicey doesn’t it? Maybe, according to the old paradigm, but things aren’t as tidy anymore, and things that used to seem untenable are actually on the table to consider these days. People are starting to look at their interactions with banks as business deals, rather than issues of honor or reputation. When you remove the stigma of a foreclosure, the embarassement of your community knowing that you couldn’t make the mortage payments, and the ethics of failing to pay back what you borrowed, it is easier to look mearely at the facts on the paper: the housing market stinks like a breeze off a landfill, no one’s house is monetarily what it is actually worth (ie. what it would cost to build the exact same house brand new right now), and why should an individual be required to pay back entirely a loan to a bank that has leeched their bailout money from the taxpayer but then refuses to talk to that same taxpayer? Shouldn’t there be some way for the bank to extend a hand of compromise to a person who wants to come through on their loan re-payment, but the current circumstances in which the United States find’s itself makes it virtually impossible to do so without going into personal bankruptcy?

Why would someone do a short sale as a seller? People want to try and do the “right thing” and pay at least a portion of mortage off in a sale, but can’t afford to take the entire loss. And a short sale affects their credit for a shorter amount of time than a foreclosure does, only 3-4 years rather than 5-7 years.

#5. Contract for Deed: Also called “CD’s”, this is usually done by a seller who owns their house outright, and a buyer who, for whatever reason, is unlikely to qualify for a mortage through a more conventional route. Guess what? The bank doesn’t want this done by people who still hold a mortage, because it puts the bank second in line…or something. Anyway, there is the chance that you can do one, get it registered or certified all legal-like, and it will all be butterflies and rainbows. But there is also the chance that the bank will find out about it, and then they have been known to call in the loan, as in “This loan is due immediately rather than 25 years from now, and you’d better come up with the money by tomorrow or you’ll be tying your shoes with your elbows.”…or something. What are the odds that the bank will have nothing better to do than come after you with all the foreclosures they’re handling? Well, that depends on just how lucky you’re feeling? Do you feel lucky? Well, do ya? (Thank you, Clint Eastwood.)

#6. FHA versus Conventional Loans: Okay, conventional loans right now want you to have like 10% – 20% down and perfect credit. Wow. That’s nice. Who are they talking to? With the way things are going for those poor saps (like me) who are trying to sell a house, who is it that can come into a new deal with 20% down? They sure as heck ain’t getting it from the sale of their other house, unless they’ve been there a long, long time.

That’s where FHA loans are supposed to fill the gap. FHA requirements are less stringent than conventional loans, with a lower credit score required, a smaller amount for a downpayment and lower percentage rates. Why would anyone try to go the other route? Because FHA is usually really picky about the kind of house they will approve for a mortgage. They can decide to say no if a house has a railing that doesn’t meet code, or siding that has some of the paint chipping off.

So what’s a person to do? Well, get yourself a rich, long lost uncle, then have him die and leave you a huge windfall of money. Can’t arrange that? Me neither. Neither can most of America.

It is difficult to not get irritated (or irate) with the whole bank bailout thing the government did, saying that these chumps were too big to fail, then watch as the same banks tighten the screws and pretend the housing market is the same as it was seven years ago. It’s just not the same beast at all. Why should Jenny Ordinary, who needs to move out of her house to a different town for a better job, why should Jenny Ordinary be forced to pay for the completely out-of-her-control housing market that now renders her home a money pit of sorts? Why shouldn’t the bank, who was the one giving out mortages they shouldn’t have been, have to at least negotiate with her and take a portion of the loss? Why be so stubborn, and then act surprised when Jenny files for foreclosure because she can’t find any more funds to pay back the mortage, which she is trying to pay back since she has a sense of honor and duty? Does the bank have a sense of duty or honor? Are you stinkin’  kidding me?

Things have changed and changed radically. People are having to entertain things they never thought they’d have to, making deflating decisions based on a new set of principles, business models, and spreadsheets. And banks are trying to shush these people and convince them that everything is fine and they should just pretend everything is the same as it used to be. But ask anyone who finds out that their home is worth 30% less than it was two years ago, and they’ll tell you that it is a new game, and not a fun one. We aren’t playing Old Maid at your granny’s house here. This is backroom at Vegas, and the stakes are pretty high.

Take a look and see what you think: http://www.nytimes.com/2011/01/26/business/economy/26econ.html?_r=1&source=patrick.net

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