Real estate hardship has become much more familiar to a lot of people in the last couple years or so, as the bursting of the housing marketing bubble has pushed home foreclosure rates through the roof (no pun intended). With more and more people dealing with potential real estate hardship, it’s important for you to understand what it is and how you might possibly find relief–that is, if you can qualify for it.
Real estate hardship comes about for a homeowner for two basic reasons: either they have had a sudden diminishing of income, or they have had a sudden increase in expenses without any concurrent increase in income. Either one of these situations can cause a homeowner to suddenly find it difficult to keep up with paying the mortgage.
Decrease in Income
An unexpected or unavoidable drop in income might hit you for a number of reasons. If you run your own business and your business suddenly goes under–maybe you had a bad business partner who got your firm into legal trouble–you will suddenly find yourself without the income you relied on. Of course, another way to lose income is to get laid off. Certain sections of our economy aren’t all that stead right now, and if you work in one of them you could find yourself getting the pink slip with little notice.
Then there’s the typical two-income household. If your spouse gets laid off or becomes disabled, you’ll have less money coming in. In the case of disability, even if your spouse is covered by insurance, there are laws prohibiting people from making 100% of their working income through insurance just as there are with unemployment insurance benefits. And, hey–speaking of insecurity on the job, you may just be forced to take a sudden pay cut if your business finds itself in danger of closing its doors. Not much you can do about that.
Any of those incidences could qualify you as a case of real estate hardship, and you might be able to work with your lender to lower your payment or get refinanced into a better mortgage. But, if you do things to cause your own problems, don’t expect any charity. If you quit your job in disgust…if you do something stupid and easily avoidable to get yourself fired…or if you ARE that bad business partner…you probably should start packing.
Increase in Expenses
An unexpected or unavoidable increase in expenses may also bite you in the heel and cause severe financial problems. Let’s say that you have a case where you were planning, and were told that you could, refinance your balloon mortgage in a couple years when the ballooning started…but when that happens, you find that due to your home value decreasing, you don’t have enough equity to refinance. Now you’ve got a big increase in expenses that you had planned not to have.
Here’s one for ya: your wife is pregnant. You are prepared for that. What you weren’t prepared for are the quadruplets. BIG increase. Let’s say you’re that business owner and with the market forces being what they are you’ve suddenly got considerably higher fuel and supply-stock costs. These can come on rather suddenly and hit your bank account very hard. Or let’s say that, although you have done nothing wrong, someone decides to sue you–this is all too common nowadays. You still will need a legal defense and the case could drag on for months. Lawyers ain’t cheap.
Again, with the above situations you can possibly get help from the lender’s Loss Mitigation or foreclosure avoidance department that deals with cases of real estate hardship. But, again, don’t think you can be irresponsible and cause your own problems and then cry for help. You didn’t NEED to buy that new 17-foot sailboat. You didn’t NEED to buy that Ferrari (you don’t need three cars). And what’s with the gambling habit? Start packing.
Final Note
If you want to try to qualify as a real estate hardship case to save your house–do NOT try to get sympathy from your lender or servicer. They aren’t going to work with you just because they feel sorry for you, because they probably don’t anyway. You need to make a rational case that includes evidence that you will be able to make a quick and full recovery in the near future. Lenders would rather preserve a loan than have to foreclose, but that’s the only reason they will work with you. They’re not monsters, but business is business, and they hear special pleadings daily. Your real estate hardship case needs to be stronger than just an appeal to emotion.
The bankruptcy can stay on your credit for up to 10 years. The impact, however, is not much worse usually than if you had several defaults on other debts. And if you’re already severely behind on your mortgage payments, the damage has already been done. Of course that damage usually only lasts for 2 or 3 years if you don’t have any other defaults and pay all you other bills on time.
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