We recently brought on a few short sale clients in the Baltimore, MD area who purchased properties just before the Great Recession of 2007-2009. These clients saw the value of their properties drop drastically once the recession hit and did not seen the values recover. Some owners continued to occupy the properties as their principal residence while others rented out the properties and were left paying any shortgage out of pocket and suffering losses month-after-month.
The current housing climate caused by the Covid pandemic presents a unique opportunity for these property owners to divest themselves of a huge liability, while minimizing the consequences to their credit score. How so? The Coronavirus Aid, Relief, and Economic Security (CARES) Act requires the lenders to report to the credit bureaus that the borrowers are current on their loan or account if the homeowners are:
- current on their mortgage;
- enter into a forebearance or other accomodation with their lender (allowing them to suspend payments)
- and are meeting the terms of the agreement
How would this look? Let’s run out a scenario for context. A property owner has a former principal residence that is underwater by $100,000.00. S/he purchased another home and is renting out the former residence. The rent coming in does not cover the full mortgage payment and the owner is paying $500.00 monthly to cover the shortage. S/he could enter into a forebearance agreement with the lender, negotiate a 4-6 month suspension of payments, list the property as a short sale and have the property sold before the forebearance period expires. The lender would be required to report that the loan is current during the marketing period while no payments are being made.
Additionally, where a loan is already in default some lenders are willing to suspend negative credit reporting. How this is handled varies from lender to lender, but the key it to contact the lender and work out an arrangement.
If you have a client nurturing along a property with negative equity and is current on their mortgage, or is in default, now is the time to reach out and encourage them to enter into a forebearance or other agreement, list the property as a short sale, skip 4-6 months of payments, sell the property and not take a hit to their credit score for the skipped payments.
Please call the experienced team of Baltimore, MD real estate lawyers at Heise & Heise at (410) 394-9504 for more details on how we might be able to assist you.