LitaWrites (real_lawyer) wrote,

I’ve reached the bottom, and I still can’t see up

I got a call from a client’s brother that really disturbed me.  He’d purchased his home  in October, 2003 with 5% down and an adjustable rate mortgage (ARM) that had a very low introductory rate.  As of December 1,2006, his rate will increase so significantly that his payments will jump $600.00+ per month.  In the interim, he and his wife have had a second child with “special needs” not fully covered by insurance, and his wife has cut her hours in half to take their child from clinics to doctors to hospitals.

He knows the market stinks.  He knows he can’t afford his house at the end of this week.  And he thinks he’s come up with the only solution possible, to let the bank foreclose on his home, which he discussed with his family at the Thanksgiving table.  That prompted his sister to insist he call me as soon as the holidays ended to see if I could help him out of this dilemma.

First, I asked if he had another place to live lined up for his wife, kids, and himself, because the foreclosure will show up on his credit report, and without a ton of cash, most landlords will refuse to rent to them.

Second, I asked if he has spoken with his lender.  Turns out he had not; he just called the mortgage broker who had put together the deal at first, and who proposed to refinance with another ARM, which felt wrong even to this desperate man.  I suggested he call the lender, as most have a department dedicated to avoiding foreclosure (unlike that broker who is not interested in the least about consequences past closing).  Lenders don’t want to foreclose and if at all possible, they will find a solution that works.  I also told him he might have to take on a second job to show the lender his willingness to pay a sum greater than his current payment, but certainly less than the more than $600.00 monthly he cannot afford.

If no affordable resolution is found, I urged this man to list his house with a reputable local real estate agent, for one of two reasons:  the house might just sell at a break-even amount, or having the house listed might mean I could negotiate a short-sale later on, where the lender may be willing to accept less.

I am glad Sis gave her brother some good advice, and suggest we all play it forward a bit.  If you know anyone about to finance with an ARM, share this cautionary tale about life being too unpredictable to take a gamble on his or her home being lost when that very enticing introductory rate expires.
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