Does It Pay to Maintain Your Credit?
A few months ago, I had a couple come to me about short selling their house. Both the husband and wife work for the same company, which had been hit hard during the economic crisis. John Client, who had been working as a trainer for the company found his position eliminated and himself moved into a much lower paying position with the company. While he was still happy to have a job, his income was decreased fairly severely. Jane Client still held her position, however all overtime and bonuses had been eliminated, something they relied on regularly as part of their income. Jane had just given birth to their second child. Various illnesses and pregnancy related conditions for John, Jane and their 2 year old daughter, resulted in over $4,000 in medical expenses this year alone.
It didn’t take long for John and Jane to see the writing on the wall, and as you can imagine, they were starting to panic about how they would pay their mortgage, let alone the mounting debt. Thinking it would be in everybody’s best interest to be proactive, they called me about short selling their house. With the financial assistance of family members, John and Jane had been continuing to pay their mortgage and other bills. They had also had help from family taking care of the new baby, but that ended in September, resulting in their daycare bill doubling, something they couldn’t afford.
They asked me if they should continue to pay their mortgage, as they were very concerned about the consequences of not, but also knew that they couldn’t continue to ask for help from family. I, of course, recommended that they continue to pay their mortgage while we listed their home for sale. They continued to pay their mortgage through the month of November, at which time their daughter needed surgery and they had to choose between making the house payment and getting their daughter the much needed medical procedure.
We listed the home on the Boise MLS and received an offer in November and submitted it to the banks right away. Jane spoke with the lender personally and they told her flat out that unless she was delinquent with her loan, they couldn’t even consider approving a short sale. The loan officer actually told her to not pay the next month’s mortgage, which as it turns out she couldn’t do anyway. When we spoke with the second lien holder, they told us that their credit scores are too high to approve a short sale. Let me repeat that-both banks (one of which is Bank of America, the other is a local lender) told her they would not accept a short sale until she went delinquent on her house payment for a few months.
John and Jane, while they did their best to maintain their credit rating and stay in good standing as long as they could, are now feeling like they have been penalized and are feeling very disheartened. Not only did they hope to salvage their credit rating, but felt that if they did their best to keep paying, including borrowing money from family, that the banks would be happier with them. This, in fact, proved not to be the case. Because of their efforts to abide by their financial agreements, the sale has been delayed and mounds of extra paperwork need to be supplied, proving their inability to pay in just about every way one can imagine and then some.
When someone has to go through either a short sale or a foreclosure, it is a very emotional and painful process for the homeowners. There is a huge amount of self-imposed shame and guilt, and acceptance of the inevitable can sometimes be a very difficult pill to swallow. Couple that with my clients’ desperate attempts to do the right thing and then being told they would be better off had they just let everything go and the emotional burden just got heavier. Our biggest hurdle right now is hoping that the Buyer will hang on long enough for us to work through the process. While I would never tell a client to dodge a financial obligation, I see the irony in the whole process.
Tags: foreclosure
