Smart About Money: Mortgage Conundrum

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Although the real estate market here in eastern Massachusetts has generally held up better than in other parts of the country, there are still plenty of people who are struggling with mortgages and many who are underwater on their loans — meaning they owe more than they could currently hope to sell their home for.

In this column, we’ll take a look at one family’s situation and how they might move forward. Next time, we’ll consider another underwater homeowner and how a situation that seems quite similar actually has a very different probable best course of action.

I recently spoke to a husband and wife who had bought their house in Norwood for $375,000 a few years ago and currently owe $350,000 on it. They’d spoken to a real estate agent who told them they’d be lucky to get $310,000 in today’s market. Ouch!

The husband had been laid off for more than a year and had only recently found a new job. They were up to date on their mortgage, but seriously behind on most of their other debts.

Their dearest wish? To get rid of the house and start fresh with one they could more easily afford.

They wanted to know if they should do a short sale — selling for what they could get — and then walk away, losing both their down payment and the albatross hanging around their necks.

It’s quite difficult to say what would be right for these folks. Media reports make walking away sound so easy, but arranging a short sale is always complicated and not always even the clean break people are hoping for.

I advised them to speak to the holder of the note to see if that lender had a forbearance program that would get them off the hook temporarily, giving them time to catch their breath before making such a significant decision.

Especially because getting a lender to agree to allow a short sale is complicated. For one thing, the lender doesn’t have to allow it. And many are overwhelmed with requests right now. So it can take months of disciplined follow-up to even get an answer to that question — especially for this couple who’d be dealing with the call center for the West Coast bank who now owns their mortgage.

That lender might forgive the $40,000 — possibly making it a taxable event for the couple — or they might refuse to forgive it, in which case the homeowners would be paying off the old house debt for years.

That would be especially sad if the market rebounds and in a couple of years they could sell their house at closer to what they paid for it … or more.

This couple made no big mistakes — it was just a case of wrong time/wrong place. In situations like this, the best answer is to carefully explore all your options and then make the best decision from among what will likely be some very tough choices.

Nick Maffeo is the senior vice president, chief financial officer and treasurer at the Canton Co-operative Bank in Canton. Have a question? Email to submissions@thecantoncitizen.com.

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