J.J. Ballard's Blog

It wasn’t long ago that some economic forecasters anticipated a turnaround in the home-sale market by 2012. When the economic recovery stalled and the housing market showed no sign of turning around quickly, projections for a housing recovery were pushed out two, three and even seven years.

Ken Rosen, chairman of the Fisher Center for Real Estate & Urban Economics at the University of California, Berkeley, believes that home prices have bottomed and are increasing in areas powered by strong job growth. However, even in places where prices are rising, they are not rebounding.

Not all economists agree that home prices have hit bottom; many anticipate another 5 percent price decline over the next two years.

Rosen gives a 65 percent probability that the recovery will be choppy. He forecasts a 5 percent chance of a strong recovery and a 30 percent chance of a double-dip recession. Factors holding a recovery back: a general sense of uncertainty that undermines consumer confidence; millions of unsold foreclosure properties; high unemployment; cutbacks in services; and tight credit conditions.

In some urban areas of the country, like Atlanta, Chicago, Miami and Phoenix, it may be more advantageous to buy than to rent. Apartment rents have been rising due to increased demand for rentals from people who have lost their homes in foreclosure, empty nesters trading down, people with jobs who have decided not to buy, and people who would like to buy but who can’t qualify.

The same lenders who gave risky mortgages to buyers who couldn’t afford them in 2005 and 2006 are now making it difficult for qualified buyers to get financing. It used to take a credit score of 620 or more to qualify for a conventional mortgage. In those days, loans to buyers with 5 to 10 percent cash down were readily available.

Today’s buyers need a credit score of 760. Some conventional lenders require a 20 percent cash down payment. If the buyers are self-employed it can be more difficult to qualify. It’s a great time to trade up, but most buyers can’t qualify to buy the new home without first selling their current home.

One of the best things that could happen to the housing market at this point would be an easing of credit-qualifying standards — not to the ridiculously low level of several years ago, but to a level that would enable more creditworthy buyers to take advantage of today’s low interest rates and relatively low home prices.

Good news lately bodes well for the future, but you should anticipate continued volatility. The jobless rate dropped to 8.6 percent nationally in November, the lowest level in 2 1/2 years. The consumer confidence index rose 15 points in November, to 56. Although encouraging, if the economy were on solid ground we would expect a reading of 90.

HOUSE HUNTING TIP: It’s a good time to buy a home in many areas of the country. However, it’s only a good time if you buy for the long term and you have realistic expectations about what buying a home will entail. It will require maintenance, which costs money and takes time.

Your home is unlikely to be the cash cow that most buyers expected — and many achieved — during the bubble years. According to Robert Shiller, Yale University economist, home prices track, on average, with the inflation rate over long periods.

Renters with good incomes and good credit who are tired of moving could benefit from buying a home now. Just be aware that if we go into a double-dip recession, prices could drop another 10 percent in some areas. That’s why you don’t want to buy for the short run.

THE CLOSING: Buyers having trouble amassing 20 percent for a down payment should check with independent banks that have more flexibility in their qualifying criteria.

By Dian Hymer, Monday, January 9, 2012.

Inman News®

Dian Hymer, a real estate broker with more than 30 years’ experience, is a nationally syndicated real estate columnist and author of “House Hunting: The Take-Along Workbook for Home Buyers” and “Starting Out, The Complete Home Buyer’s Guide.”

Q: We bought a house this year! We put $33,000 down and the bank financed $28,000. Can I write this off on my 2011 taxes? How much of it?

A: First things first: Congratulations! You’ve become a homeowner, and seem to have done so using an enviable financial arrangement. But now that you own a home, you might need to shift the way you think and look at some things, including your taxes and other financial matters.

Owning a home is one of those landmarks that signify financial adulthood. And one of the things that responsible financial adults do is get professional help when the situation requires it. Taxes are one of those areas that often do warrant calling the pros in.

I’m not just shilling for the tax prep industry here, either: The ultimate aim of using a tax professional is to make sure you get every deduction, credit and other tax advantage for which you qualify, without jacking up your chances at triggering the universally dreaded Internal Revenue Service audit by claiming dubious deductions.

Your mortgage debt is fairly small, as was your home’s purchase price, though I don’t know whether they are large or small in the context of your overall financial picture (i.e., income, assets, investments, etc.).

The fact that you saved or somehow came up with such a sizable chunk of change to put down makes me hesitate to assume that your finances are as simple as your mortgage balance might otherwise lead me to believe.

So, it might be the case that you can easily handle your own taxes — in fact, it’s even possible that your real estate-related deductions won’t even outweigh the standard deductions, so that filing a simple form without even itemizing your deductions is actually the financially advantageous move.

Whether that’s the case cannot be determined in a vacuum — you may have other financial and tax issues going on. But with software and tax preparation services as inexpensive as they are, starting at under $20 for simple returns, I think it behooves you to get some professional advice and ensure you get the deductions you need.

Hiring a tax preparer might be a worthwhile investment to make, even if just this year, so he or she can brief you on what records you should keep and strategies you should do moving forward, like home repair and improvement receipts, or documentation of your use of an area of the home as a home office.

Now, let’s talk more substantively about the deductions that are available to you, in the event you do decide to itemize your taxes (IRS Publication 530 offers a more nuanced view into Tax Information for Homeowners):

1. Mortgage interest deduction. Assuming this home is your personal residence, 100 percent of the mortgage interest you owe and pay before Dec. 31, 2011, is deductible on your 2011 taxes. In January, your mortgage lender will send you a form documenting the precise amount of interest you paid, although most lenders also now make this form immediately available to borrowers online.

Chances are good that you paid some amount of advance interest on your home loan at closing — expect to see that on your statement from your lender, but you should also be able to find it on the HUD-1 settlement statement you received from your escrow agent at closing.

2. Property tax deductions. Again, assuming that this is the home you live in most of the time, you should be able to deduct 100 percent of the property taxes you’ve paid to your state and/or local taxing agency this year.

3. Closing-cost deductions. Discount points and origination fees paid to your mortgage lender and/or broker at closing are frequently deductible, but there are rules around this, which tax software and/or professionals can help you make sure you meet. Note that, according to Internal Revenue Service Publication 530, “You cannot deduct transfer taxes and similar taxes and charges on the sale of a personal home.”

There are various home improvements (especially those that increase your home’s energy efficiency), state and local tax credits for buying a foreclosure, and other tax advantages that might be available to you.

My advice is to work with an experienced, local tax preparer or, at the very least, use reputable tax preparation software to ensure that you get the maximum tax advantages available to you as a result of your new role as a homeowner.

By Tara-Nicholle Nelson, Thursday, January 5, 2012.

Inman News®

Tara-Nicholle Nelson is author of “The Savvy Woman’s Homebuying Handbook” and “Trillion Dollar Women: Use Your Power to Make Buying and Remodeling Decisions.” Tara is also the Consumer Ambassador and Educator for real estate listings search site Trulia.com. Ask her a real estate question online or visit her website, www.rethinkrealestate.com.

Mortgage rates surveyed by Freddie Mac bounced back from historic lows this week, but aren’t expected to soar in the New Year.

Rates on 30-year fixed-rate mortgages averaged 3.95 percent with an average 0.7 point for the week ending Dec. 29. That’s up from 3.91 percent last week — an all-time low in records dating to 1971 — but still well below the 2011 high of 5.05 percent seen in February.

The 30-year fixed-rate loan has averaged at or below 4 percent for the past nine consecutive weeks, Freddie Mac noted in releasing the results of its Primary Mortgage Market Survey.

Rates for 15-year fixed-rate mortgages averaged 3.24 percent with an average 0.8 point. That’s up from 3.21 percent last week, an all-time low in records dating to 1991, but down from the 2011 high of 4.29 percent registered in February.

For 5-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) loans, rates averaged 2.88 percent with an average 0.6 point. That’s up from 2.85 percent last week, an all-time low in records dating to 2005, but down more than 1 percentage point from the 2011 high of 3.92 percent seen in February.

Rates on 1-year Treasury-indexed ARM loans averaged 2.78 percent with an average 0.6 point. That’s up from 2.77 percent last week, an all-time low in records dating to 1984, but  down from a 2011 high of 3.4 percent in February.

Freddie Mac’s rate survey is based on loans offered to borrowers with good credit scores who will be making down payments of at least 20 percent. Borrowers with damaged credit or making smaller down payments can expect to pay higher rates.

Mortgage rates are largely determined by demand for mortgage-backed securities (MBS), bonds that fund the vast majority of home loans.

The Federal Reserve helped push mortgage rates down in 2009 and 2010 by buying $1.25 trillion in MBS. Since then, the European debt crisis has helped keep mortgage rates down, as investors seek the relative safety of government-backed mortgage bonds, whose payments are guaranteed by Fannie Mae, Freddie Mac and Ginnie Mae.

In a Dec. 20 forecast, economists at Fannie Mae project that rates for fixed-rate mortgages will average 4.0 percent in 2012 and 4.3 percent in 2013, down from 4.5 percent this year and 5 percent in 2009.

The Mortgage Bankers Association predicts rates on 30-year fixed-rate loans will average 4.2 percent in 2012 before rising to 4.7 percent in 2013. The National Association of Realtors projects rates on 30-year fixed-rate loans will hold steady at 4.5 percent in 2012.

By Inman News, Thursday, December 29, 2011.

Inman News®

While reading this article about the aggressive — and ostensibly legal — tax reduction strategies of Ronald S. Lauder (son of Estée), I was struck by this quote from University of Colorado law professor Victor Fleischer: “There’s real truth to the idea that the tax code for the 1 percent is different from the tax code for the 99 percent.”

The connotation? The super-rich have not only cash, but also elite access to loopholes and other advantages to which the 99 percent might aspire, but will never attain.

While the Occupy movement is on a mission to illuminate and shatter power imbalances between the 99 percent and the 1 percent, there’s another angle to take on the issue: Let’s call it the “If you can’t beat ‘em, learn from ‘em” school of thought.

Along those lines, here are four real estate lessons all of us can take from the 1 percent:

1. Take advantage of government programs/assistance. When the big banks — whose execs certainly belong to the 1 percent — began to experience the fallout of the subprime mortgage meltdown, they threw up their hands, pleaded their case, enrolled governmental advocates and got the bailouts we now know as the $700 billion Troubled Assets Relief Program, or TARP.

Yet many an individual American, whose personal finances have too much at stake to fail — at least as far as their household and local communities are concerned — struggle silently to make their monthly mortgage payment.

More than 20 million American households are upside down on their mortgages. The Obama administration’s foreclosure avoidance program, Home Affordable Refinance Program (HARP), was designed to help 5 million homeowners refinance into lower interest rates and payments.

At last count, earlier this fall, HARP had actually helped only 62,500 seriously underwater homeowners, and fewer than 900,000 homeowners total — a number so low Congressional Republicans sought to wind the program down. The Obama administration revised the program in hopes of helping more homeowners. (In 2009, the administration projected 4 million HARP refinances by fall 2011.)

The Main Street bailout is here and, whether you think it’s sufficient or not, it seems indisputable that it is vastly underutilized.

In an effort to get more help to the homeowners who need it, the Obama administration loosened up qualifying criteria; the revised guidelines just kicked in on Dec. 1, 2011. The 1 percent looks to the government when they are down on their luck; so should you.

2. Take full advantage of the tax code. Many members of the 99 percent have decried the complexity of the tax code and its loopholes that favor the rich. Lauder’s son, for example, has reportedly deferred or avoided tens of millions in federal taxes by donating art to his own foundations, deducting of property taxes on an extensive real estate portfolio, making massive charitable donations, and derivative stock transfers — deductions accessible only to those rich enough to own such assets in the first place!

Besides the better-known federal mortgage interest and property tax write-offs, there are numerous, less well-known deductions of which “99 percent-ers” should take full advantage.

Some areas allow renters to take a property tax credit. Similarly, homeowners who switch to solar or installing a tankless water heater can get the federal government to help pay via tax credits, some of which expire soon, others of which will be longer lived. It won’t line your pocket with millions, but every little bit helps.

3. Pay for professional advice when it counts. You’d be amazed at the number of buyers, sellers and homeowners I’ve heard reference real estate advice they received from their parents, their mechanic and the other moms at day care — and that doesn’t even begin to count the folks who try to distill insights just from a headline in the national nightly news or from a story they overheard at the hairdresser about the amazing deal they were able to negotiate (and, by the by, everyone exaggerates at the hairdresser!).

I assure you, Mr. Lauder pays a virtual army of attorneys and accountants a pretty penny for his tax advice. And the rest of us should make the appropriate investment in obtaining experienced, local, professional advice when it comes to making potentially life-changing real estate, mortgage and tax decisions.

4. Don’t let emotion cloud your decisions. Members of the 99 percent often stay emotionally committed to a home or a list price despite the fact that it is absolutely a losing battle, the data completely contradicts our commitment, or that the living situation no longer works for the people who live in the household.

The 1 percent, on the other hand, will divest of a home or slash even millions of dollars off the list price of their home in a New York minute, if it makes business sense.

Obviously, it’s a bit easier to be detached from an asset when it’s not the only asset you have. As well, sometimes the 1 percent is a little too hasty to detach from all sorts of relationships that most of us in the 99 percent hold dear — from homeownership to marriage and beyond.

But we 99 percent-ers might do well to take a page from the 1 percent playbook when it comes to holding onto assets that have become toxic. Sometimes, it makes sense to short-sell the house, divest of it via a deed-in-lieu of foreclosure, or simply slash the list price, in the service of the household’s greater, long-term financial good.

By Tara-Nicholle Nelson, Tuesday, December 20, 2011.

Inman News®

Tara-Nicholle Nelson is author of “The Savvy Woman’s Homebuying Handbook” and “Trillion Dollar Women: Use Your Power to Make Buying and Remodeling Decisions.” Tara is also the Consumer Ambassador and Educator for real estate listings search site Trulia.com. Ask her a real estate question online or visit her website, www.rethinkrealestate.com.

Two years ago, the National Association of Realtors, the largest trade group in the nation with 1 million members, floated its idea of a housing solution to attendees at its annual convention.

NAR later presented Congress with a Four-Point Housing Stimulus Plan to help stabilize the housing and mortgage markets. The crux of the package suggested using $130 billion of the $700 federal billion bailout funds on housing, specifically earmarked for an interest-rate buydown and more tax credits.

That buydown idea did not happen. It would have been a one-percentage-point, interest-rate buydown on fixed-rate loans for all buyers. The reduction reportedly would have resulted in approximately 840,000 additional home sales and reduced the inventory of homes by as much as 20 percent.

What was adopted was an $8,000 first-time homebuyer tax credit and a new existing homeowner tax credit of $6,500. The first-time bonus was especially popular, even extended for an additional period.

This year, NAR crafted a five-point proposal, New Solutions for America’s Housing Crisis, that really does not contain any new ideas at all, rather a restoration of old guidelines and programs.

While each “point” contains about five subtitles that could easily stand alone, the proposal focuses on higher lending limits, no reductions in the mortgage interest deduction, reinstatement of the FHA 203(k) program for investors, and relaxed mortgage guidelines for second homes.

The investor message came through loud and clear, particularly because Florida credits its rebound to investors and international second-home buyers. According to Moe Veissi, NAR president-elect, a 10-year supply of condominiums has been reduced to seven months due to cash transactions by investors looking to hold the properties for long-term rentals.

“Investors are not healthy to the market during bubble years, but they can help speed up the recovery in a down market,” said Lawrence Yun, NAR’s chief economist.

Owner-occupants continue to use popular 203(k) loans, which allow the borrower to finance both the purchase of the property and upgrades into one mortgage guaranteed by the government.

However, for the past 15 years, FHA has maintained a moratorium on allowing investors to use the 203(k) program because of past abuses in how the refurbished properties were appraised.

Most mortgage loans provide only permanent financing. Typically, the lender will not close the loan and release the money unless the condition and value of the property provide adequate loan security. When rehabilitation is involved, the lender usually requires improvements to be finished before a long-term mortgage is granted.

When a buyer wants to purchase a house that needs repair or updating, the buyer usually has to obtain interim financing to purchase the dwelling, then additional financing to do the work. When the rehab is completed, a permanent mortgage — which pays off the interim loans — is made.

(Interim financing often involves relatively high interest rates and relatively short payback periods.)

The FHA 203(k) program was designed to roll all financing into one package. The borrower can take out one mortgage loan, at a long-term fixed or adjustable rate, to finance both the acquisition and the rehabilitation of the property. The mortgage amount is based on the “as will be” (projected) value of the property and takes into account the cost of the work.

FHA 203(k) loans are available for purchase or refinance. The refinance component can combine all existing loans plus provide the funds for needed repairs.

To minimize risk to the mortgage lender, the loan is eligible for endorsement by FHA as soon as the mortgage proceeds are disbursed and a rehabilitation escrow account is established. At that point, the lender has a fully insured mortgage.

The FHA 203(k) loan can come in handy in a foreclosure sale — and especially to investors around the country. In many cases, the previous owner has taken fixtures or the structure is in dire need of repair. Loan proceeds would provide for the updates and the permanent financing.

It’s time to let investors back under the FHA 203(k) umbrella. It’s past time to get vacant homes cleaned up and alive again with occupants.

By Tom Kelly, Wednesday, December 14, 2011.

Inman News®

Tom Kelly’s new e-book, “Bargains Beyond the Border: Get Past the Blood and Drugs: Mexico’s Lower Cost of Living Can Avert a Tearful Retirement,” is available online at Apple’s iBookstore, Amazon.com, Sony’s Reader Store, Barnes & Noble, Kobo, Diesel eBook Store, and Google Editions. 

Currently, foreclosures account for about 30% of all home sales in the U.S. Many of these homes have been neglected and are in need of repair. These market conditions have made renovation loans a hot item.

Renovation loans are very attractive for a number of reasons. The Federal Housing Administration (FHA) 203K renovation loan provides the money to both purchase the home and finance the home’s renovation. The down payment required on a renovation loan can be as low as 3.5%. Renovation loans are also very convenient. With one loan, there’s only one application, one set of fees, one closing and one monthly payment. At closing, the repair money is put into a special account for disbursement as repairs are completed.

Prospect has seen a sharp rise in the demand for renovation loans. To better service these increasingly popular loans, Prospect has put an experienced Renovation Management Team in place; implemented training and certification programs for Loan Officers originating renovation loans; and developed a Fast Track Team to expedite the renovation loan process.

Consequently, Prospect has increased its renovation loan market share in the past couple of years by more than 80%. In fact, today Prospect is the second largest FHA 203K renovation lender in the nation.

Only a limited number of lenders offer 203K financing. With foreclosure sales running six times higher than normal — and many of these homes in need of repair — just knowing about renovation loans may make the vital difference to motivate your buyers to purchase.

from Prospect Mortgage Industry Insider

Reverse mortgages can help older peope in need of extra cash.  They allow homeowners ages 62 and older to access their home’s equity for any financial purpose.  If the owner remains in the home, the loan doesn’t have to be paid back (payback occurs when the home is sold).

The drawbacks?  Although the new federally backed Home Equity Conversion Mortgage SaverLoan is cheaper than older versions, (0.01% of a home’s value vs. 2%), borrowing limits are smaller and interest rates higher.  Add to that annual insurance costs of 1.25% of a home’s value.  “Throw in the loan-origination fee, appraisal and other upfront costs, and we’re potentially talking big bucks,” says Ray Brown, co-author of Mortgages for Dummies.  So consider:

Will you stay long?  The longer you stay in your home, the more you can spread out the expense. 

Does your home fit?  “A reverse mortgage enables some folks to remain in a house that’s highly unsuitable for them – too big, too many stairs, not energy efficient,” says Brown.  “Downsizing into a smaller home is one way to free up the equity in your big, old empty nest.”

Jeff Wuorio – from USA WEEKEND magazine

Will the rule that all mortgage servicers must designate one employee as a single point of contact for every borrower requesting a loan modification make the process easier for borrowers to navigate?”

The rule to which you refer was issued earlier this year by the Office of the Comptroller of the Currency (OCC). It was part of a package of enforcement actions taken against eight of the largest national bank mortgage servicers for unsafe and unsound practices related to mortgage servicing.

This particular action required the servicers to provide each applicant with the name of a single point of contact (SPOC) along with “one or more direct means of communication with the contact.” Shortly thereafter, Treasury announced that SPOC would be the rule for all servicers participating in the Making Home Affordable Program.

Since poor communication between servicers and borrowers has been a core problem bedeviling the mortgage modifications problem, the SPOC seems like a sensible idea. In fact, SPOC will not improve communication with borrowers.

Road sign image via Shutterstock.

“Will the rule that all mortgage servicers must designate one employee as a single point of contact for every borrower requesting a loan modification make the process easier for borrowers to navigate?”

The rule to which you refer was issued earlier this year by the Office of the Comptroller of the Currency (OCC). It was part of a package of enforcement actions taken against eight of the largest national bank mortgage servicers for unsafe and unsound practices related to mortgage servicing.

This particular action required the servicers to provide each applicant with the name of a single point of contact (SPOC) along with “one or more direct means of communication with the contact.” Shortly thereafter, Treasury announced that SPOC would be the rule for all servicers participating in the Making Home Affordable Program.

Since poor communication between servicers and borrowers has been a core problem bedeviling the mortgage modifications problem, the SPOC seems like a sensible idea. In fact, SPOC will not improve communication with borrowers.

Article continues below

Advertise with Inman

For example, informing a borrower that “Henceforth, Jane Doe is your contact person and her email address is jdoe@lenderZ.com” won’t actually help the borrower unless Jane has quick access to the most current information about the status of the application, which today is very unlikely.

The crux of the communication problem is not the lack of an SPOC — it is inadequate systems for capturing in one place all the information needed to resolve an application for a modification, and for making it available to all the persons involved.

If the servicer has an easily accessible system that shows what has been done, what remains to be done, and what additional information is required from the borrower, any customer service representative can provide the same information to the borrower.

In such case, the requirement that each borrower can communicate only with an SPOC can only reduce efficiency. The SPOC may be busy when the client calls, or having lunch, or perhaps on vacation, while other SPOCs are idle.

If the system isn’t adequate, on the other hand, an SPOC is not going to be able to answer the borrower’s questions without making the rounds of those who have been working on that borrower’s case, which will take time while other calls stack up. The SPOC cannot remedy system deficiencies.

The best system is an Internet-based portal available to borrowers as well as authorized employees of the servicer. The portal is the SPOC in the sense that borrowers can access it at any time to see the exact status of their application.

But it is also a multiple point of contact in the sense that borrowers can communicate with any of the employees involved in their case by sending and receiving messages through the portal.

Two portals now exist, one from Default Mitigation Management (DMM), a private firm that recently opened its portal to borrowers. The second is the Hope LoanPort, which is a nonprofit associated with Hope Now, the nonprofit consortium of servicers, loan counseling agencies and others.

The Hope LoanPort is more widely used by servicers than DMM, but it is not open to borrowers. I have no financial interest in either.

The DMM portal works in the following way: The borrower opens an account with DMM, selects the servicer from a list on the portal, and receives the complete set of documents required by that servicer. The borrower fills out the documents and sends them to the portal, which delivers the files to the servicer.

The borrower receives a dated acknowledgment of submission through the portal. If the servicer finds a deficiency in or omission from the submission, a message to that effect is sent back to the borrower through the portal. Corrections by the borrower are returned through the portal.

At any time, the borrower can access the portal for an update on what has been completed and what remains to be done. The servicer employees working a particular file are assigned to the borrower on the portal. This means that a borrower who has a question or issue is automatically directed to the employee involved in her issue.

All such communications are time-stamped and remain in the portal as a transparent record of borrower/servicer exchanges. As an important side benefit, the portal provides all the means for establishing the accountability of servicers for results.

The government’s decision to require a human SPOC rather than a systems SPOC is difficult to understand. A systems SPOC would solve both the communications problem and the accountability problem. The human SPOC is costing an enormous amount to provide little more than PR window-dressing for regulators.

By Jack Guttentag, Monday, December 5, 2011.

Inman News™

The writer is professor of finance emeritus at the Wharton School of the University of Pennsylvania. Comments and questions can be left at www.mtgprofessor.com.

Q: We just got multiple offers on my “vacation” house listed as a short sale. And so far, we have begged and borrowed to keep our mortgage current so our credit scores will be less bruised. But now that our house is in contract, do I continue to pay the mortgage? Our debt exceeds our income due to job and benefit loss.

Here’s my bigger concern: Since we are current, I don’t want the bank to reject the offers just because we have been current, although our financial papers will prove that our debt exceeds our income. –Cindy

A: There are a number of schools of thought and approaches to deciding whether to continue making your mortgage payments while you’re selling your home on a short sale, and your ultimate decision will require you to weigh a number of factors and see where your personal calculus of your own values and interests comes out:

Legal: Legally speaking, you have an obligation to pay your mortgage and property taxes as long as you own your home. While you might very well make the decision not to for a number of reasons (see below), it’s important to keep the legal contract you made to pay especially your mortgage in mind, as some lenders make efforts to reserve the right to come after you later for the deficiency (i.e., the difference between the sale price of your home and your mortgage balance). For this reason, it’s not a bad idea to have a local real estate attorney involved in your short-sale transaction, to help you negotiate a complete release of liability for the mortgage.

The moral/ethical perspective: Morally and ethically, some homeowners view themselves as having an obligation in line with their legal commitment to pay all these items. Others look at the various factors beyond their control that have forced them to short-sale their home, like the decline in property values and the weak employment market, and have made a decision that their personal moral imperative weighs in favor of protecting their family finances and children’s education funds. In that vein, some make the conscious decision to stop paying once they’re in a short-sale situation or on a clear path to foreclosure.

Financial/business: Once you know 100 percent that you’ll be divesting of your home in some way, shape or form, continued investments in the property can seem to easily fall into the “throwing good money after bad” bucket, looking at the situation from a strictly business and financial perspective. There is also a strong sentiment among many real estate professionals that if you keep your mortgage current, while applying for a short sale or loan modification of any sort, you decrease the chances that your lender will approve of the sale.

The theory goes that if you are current on your payments, you can’t possibly have the level of hardship you must claim (and the lender must believe you have) for them to agree to waive the deficiency amount and release you from the mortgage.

I’ve seen very mixed feelings on this in the real estate industry; on this point specifically, you should definitely talk with your listing agent and your local attorney, and take their advice into account — they might have worked with this bank in the past and be able to shed light on how staying current or falling behind may affect the success prospects of your short sale application.

Credit/ability to buy again: Right now, you are probably fixated on getting out from under this onerous debt, as virtually every homeowner in your situation is as a matter of course. But I’ve worked with a number of folks through this entire experience of going upside down, losing a home through a foreclosure or short sale and financial recovery, and I know that before too terribly long, you could very well be looking to buy a home again. Just be aware that most lenders will impose a two- to three-year waiting period after you have a short sale, if you were in default on your mortgage at the time the short sale closed (sometimes the waiting period is as long as seven years, depending on what type of loan you’re trying to use to buy your new home).

However, if you do not default on your loan and are able to get your lender to green-light your short sale, you can qualify for an FHA mortgage immediately. I don’t know your personal situation, and it’s been my experience that the majority of homeowners who have a financial hardship severe enough to even attempt a short sale need a couple of years to get back on their feet, but if you think you’ll want to buy another home anytime sooner than two years from now, you’ll need to stay current on this mortgage.

Just as there are many factors your bank will weigh in determining whether to allow your short sale to close, and on what terms, you have a lot of considerations to weigh in deciding whether to continue making your mortgage payments while you await their decision. I can’t urge you strongly enough to include your real estate agent and an attorney in your decision-making process.

By Tara-Nicholle Nelson, Monday, November 28, 2011.

Inman News™

Tara-Nicholle Nelson is author of “The Savvy Woman’s Homebuying Handbook” and “Trillion Dollar Women: Use Your Power to Make Buying and Remodeling Decisions.” Tara is also the Consumer Ambassador and Educator for real estate listings search site Trulia.com. Ask her a real estate question online or visit her website, www.rethinkrealestate.com