Ask Sacramento Real Estate Gal Answers!

Some weeks ago, I wrote about a Sacramento homeowner regarding a possible short sale on two of his homes. I have now done enough research to be able to answer this very important question with the seriousness it deserves.

If you are a Sacramento homeowner in distress, here are the steps you should take:

1. Admit it. Many people that call me never take action because they are in denial. In fact, a lot of them hope their home will never be foreclosed upon and are still in denial when the home is auctioned on the courthouse steps. Don't be that person!

2. Call the mortgage company. The first thing you should do when you suspect not being able to pay your mortgage bill, is call the mortgage company and ask them if they can rewrite the loan under new terms. Now, be forewarned that they cannot create miracles. If your home had been bought just two years ago and the value has plummeted, the mortgage company might not be able to rewrite the loan without you contributing some cash. Try and work it out so that you can keep your home.

3. Research the ARM freeze plan and see if it benefits you. If you had taken out an adjustable rate mortgage, hoping to refinance in two to three years, and can still make the minimum payment, you might be able to freeze your rate for some time. Here's the FAQ page about how you might be able to freeze your rate.

4. If none of the above options work, then your might have to consider bankruptcy and see if you can still keep your home. Research bankruptcy options here. If they sound like something you might be able to do, hire a bankruptcy lawyer or at least go in for a consultation. If you can keep your home until after this mortgage mess ends, it might be worth at least looking into.

5. If the mortgage company won't rewrite the loan and the ARM freeze doesn't help and you decide bankruptcy is not the way to go, you're probably resigned to the fact that you are going to have to move out of the home. A short sale might be possible and you should list your home as soon as you can. The mortgage company will not tell you what amount they will accept and probably will start the foreclosure process as soon as you stop paying your mortgage, but if your Realtor prices the home right and it shows well, you might be one of the lucky few that gets a short sale through, where the mortgage company forgives your debt and settles for less than what you owe. While there is some debate on how little or how much it affects your credit score, the most important thing about a short sale is speed. The quicker the home is sold, the less it brings down your score, so pricing it right is important. Also, the Mortgage Forgiveness Act may now forgive your debt even if your lender gives you a 1099, so you may not pay taxes on it. Consult your tax professional.

6. Of course, if none of these options work, the last option is foreclosure chosen by your lender. They are however required to follow a process to foreclose on your home and you will be apprised of the actual foreclosure date, so be sure to leave the home before that date. Because California is a non-recourse state, the lender can only take the house back and cannot pursue you to pay the outstanding debt. It does however stay on your credit history for seven years.