Dealing With the Underwater Mortgage

Homeowners with no equity adjust to new real estate realities.

Can you imagine selling a home and bringing a check to the closing table rather than receiving money from the transaction? 

With real estate values in Deerfield declining below the balance of the mortgage on many homes, walking away from the sale of a house with no funds or paying to sell is becoming a new normal for some. 

Home values in Deerfield have dropped between 30 and 35 percent since 2007, according to Senior Vice President and Broker Manager Michael Mazzei. Carol Strauss, managing broker, agrees.

“This is the most challenging market I’ve seen,” Straus said. “When I started (in 1979) interest rates were 17 percent and that was a challenge,” she added indicating today’s market is the hardest she has seen for home owners.

Mazzei, who is a 24-year veteran of the business, does not think of current conditions as a recession and did not refer to it as the Great Recession to Patch. “This is a modern day depression,” he said.

Taxes Go Up While Values Drop

Adding to people’s frustration are climbing their real estate tax bills in the face of declining value, according to . People’s real estate tax bill is a ratio, according to Healy.

“Your share of what you pay is the value of your property as a proportion of the Township’s total assessed equalized value,” Healy said. When taxing bodies like the Village of Deerfield raise the levy, taxes will go up even though value drops, according to Healy.

In 2011, approximately 25 to 35 percent of Coldwell Banker’s real estate sales in Deerfield were some form of distressed transaction with the property worth less than the mortgage, according to Strauss. Mazzei put the percentage at approximately 30 percent for his company. In 2007, the ration was closer to five percent.

Many of those transactions are what the real estate industry now calls a short sale where the bank is willing to take less than the balance due on its mortgage allowing the home owner to walk away no money but no further obligation. 

Customers Are “Shell Shocked”

“They are shell shocked,” Strauss said of the customers who come into her office realizing their home equity is gone. “We act as counselors. We tell them to make sure to get a good lawyer who is an expert in the field.”

Not everyone qualifies for a short sale and many of them want to stay in the community. A person must prove to the bank there is no ability to bring a check to the closing table before the lender will entertain such a transaction, according to Koenig & Strey agent Brenda Fritz.

“There needs to be a hardship,” Fritz said. “There must be a loss of a job or an illness.” She described one Deerfield transaction where the short seller found a rental home in the area. “They had kids in the schools,” Fritz added.

Fritz’s client’s story is becoming more common. With people losing their equity and their credit rating but wanting to remain in Deerfield, the rental market has exploded, according to Strauss.

“Rentals are huge,” Strauss said. “People can’t get a mortgage,” she added explaining some of the consequences of leaving a home under a distressed sale.

Despite the downturn, Mazzei sees good things for those who are in a position to make a down payment and get a mortgage. He described a young family which purchased a home in the area for $146,000 when the amount of the mortgage was $350,000.

Liu Tsung January 12, 2012 at 03:09 PM
Most lenders in the case of a short sale will clear the balance of what you owe in the case of a short sale. From my understanding you wouldn't have to bring a check to closing to pay the balance. Most people in this position don't have any money to pay the balance, or else they would have payed the mortgage;) SOURCE - http://yourforeclosuretoday.com/Tips-to-Keep-You-Out-of-Foreclosure.html
RB January 12, 2012 at 03:19 PM
The Government has no business taking on a guarantee of these bad real estate investments. The consumer and the bank made a bad bet. The market went down. Work it out. It's when the rest of us have to pay for their mistakes through Government guarantee's of mortgages that are currently on the back of the bank that we complicate this whole situation. It is unfortunate and hopefully the parties can work it out in these situations. Just don't ask for the Banks to get another bailout via those of us who are not underwater.


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