Underwater mortgages are still a huge problem here in South Florida. Not only did our regional economy experience a huge hit from record-breaking numbers of residential foreclosures in the past few years, but we are not recovering from that injury as fast as other parts of the United States. This means many South Florida home owners with a home loan are still at risk of foreclosure on their mortgage.
Miami has the most underwater residential mortgages in the country.
Miami Metroplex Has Highest Number of Underwater Mortgages in the Country
What’s going on? According to a report released by CoreLogic in June 2017, Florida was second only to Nevada in the number of homeowners living with negative equity in their homes.
CoreLogic data also finds that the metropolitan area of “Miami-Miami Beach-Kendall, Florida” had the most underwater mortgages in the nation.
Read the CoreLogic release online here, entitled “CoreLogic Reports Nearly 9 Million Borrowers Have Regained Equity Since the Height of the Crisis in 2011.” From CoreLogic Chief Economist Frank Nothaft, “Pockets of concern remain with markets such as Miami, Las Vegas and Chicago, which are the top three for negative equity among large metros, with each recording a negative equity share at least twice or more the national average.”
What is an Underwater Mortgage?
An “underwater mortgage” is a home loan that has “negative equity.” This means that the value of the residential real estate (the land and its improvements) is less than the remaining balance on the home loan.
By subtracting the fair market value of the residential property from the balance on the mortgage, and you get the “negative equity” on the home. That is how much the home owner is underwater on the debt.
How does this happen? Well, no one goes into a home loan that is an underwater mortgage. When the bank approved the loan, things were good. The home had a market value that exceeded the amount of money the lender was providing to the borrower to buy the property.
However, things change. Maybe the local area had some issues: there was flooding, for instance. Or maybe the economy for the entire area went into a tailspin. Prices for homes in the area fall for whatever reason. Result: the real estate market is not the same as it was when the loan was made. A falling real estate market leaves many home owners with negative equity in their homes.
Bottom line, the home owner owes more to the bank than the amount he can get in a sale of the property. This is called an “underwater mortgage.”
What Does An Underwater Mortgage Mean For The Home Owner?
Anyone dealing with an underwater mortgage faces a huge financial stressor. Each month, they pay their mortgage payment on a note that is higher (sometimes significantly higher) than the value of the property itself.
If the home owner looks at this scenario from a balance sheet perspective, the liability is much greater than the asset. And as time passes, there’s no guarantee that this discrepancy won’t get worse.
Each underwater borrower must ask himself “is it financially savvy to remain in this situation? Is it better for the family to cut their losses and move? What is the right thing to do here?”
What Can The Miami Home Owner Do About Negative Equity?
There’s no one answer for the home owner with negative equity in their home. Different people will decide to do different things.
1. Stick It Out
Many South Florida home owners love their homes. This is where the family comes for the holidays. This is where they’ve chosen to retire. Memories have been built into these walls; the residential property is more than an asset on a balance sheet. It’s got a huge emotional value that must be considered alongside the number crunching.
For these Florida home owners, the best option is to keep making the mortgage payment until the home loan is paid in full. Even if the home is worth less in the marketplace than it was when they got the mortgage, it’s “home,” and they want to stick it out.
2. Refinance
One option for many underwater mortgage holders is to consider refinancing. Maybe the bank will agree to refinance their loan at a lower interest rate given the widespread underwater conditions and the wave of foreclosures it has on its books.
That may or may not be viable for the Florida home owner. However, for some, the federal government’s “Home Affordable Refinance Program” (HARP) may be the answer.
HARP helps home owners who cannot otherwise refinance their mortgages because of negative equity situations. For more on HARP, read: “FHFA Refinance Report Released Today: Over Half of Florida Refinances Done Through HARP in Janaury 2013.”
3. Short Sale
Short sales are another way for South Florida home owners to resolve their negative equity problem. Here, the home owner sells the home after negotiating with the mortgage lender.
In a short sale, their mortgage lender agrees to take less than the original value of the home loan as the borrower sells the home for as high as sales price as he can get.
A key part of this negotiation has to be the deficiency balance that will be left on the mortgage note after the sales price has been applied to the mortgage. Is the lender going to expect the borrower to cover 100% of that deficiency balance?
For more on deficiencies, read “Did You Get A Letter From A Debt Collector For A Florida Mortgage Deficiency Related to a Foreclosure Or Short Sale?”
4. Foreclosure
Finally, the underwater mortgage situation may become so dire that the borrower decides to walk away from the home. Here, the home owner opts to allow the bank to foreclose on the home because the negative equity is too great for the borrower to continue to support.
Florida is a judicial foreclosure state. This means that if the home owner stops making the monthly mortgage payments, then the lender will file a lawsuit in the county where the residence is located. The bank will get a judgment against the borrower for the amount left due on the home loan, plus other litigation expenses. The bank will also get title to the property so it can be sold in a foreclosure sale.
Underwater home owners who choose to walk away need to understand that they will be choosing not only a loss of the home but a lawsuit on record showing them as a defendant in a civil case where they were found liable to the plaintiff. This can impact not only credit scores but job applications and more.
Florida Foreclosure Defense Lawyer Can Help Underwater Home Owners
Before making any major decisions about what to do with an underwater mortgage here in the Miami area, it may be wise to consult with an experienced Florida Foreclosure Defense lawyer. Your situation is unique, as is your home. Consider the following:
1. How bad is the market?
Market analysis of the real estate community where the home is located can be found. Researchers project future market values for every section of South Florida. Is it possible that waiting two years might turn things around? In the long haul, is the negative equity going to resolve itself? If so, then sitting back and being patient may be the best course for the underwater home owner.
2. What about the appraised value?
How does your particular residence compare with others in your area? Are there things that you can do to the home or its surrounding area to improve its appraised value? Real estate appraisers look for all sorts of things when appraising homes. Did you know that ceiling fans and privacy fences may impact the market value of your home?
Note however that an “appraised value” is not the same as “market value” from the perspective of your lender.
Market value vs appraisal
Banks look at the environment surrounding your home to decide its “market value.” The factors here include comparable sales in the area during the past few months; future developments in the neighborhood (construction of shopping strips, roads, etc.), and how healthy the overall residential real estate market is for that neighborhood or regional area.
Appraisers look at the particular property. They then compare it to similar properties in the area and derive an individual value for the home. This is its’ “appraised value.”
This does not mean that the appraisal will carry no weight with the lender. In negotiations for refinancing or a short sale, having an expert opinion of the value of your home and its projected worth in a sale can be important and invaluable to you. It can help you in discussions with your lender.
3. Short Sale or Foreclosure
If you decide to negotiate with the lender, then having an experienced foreclosure defense lawyer at your side can be a key to resolving your issues quickly and to your satisfaction. The lawyer will likely know the position of the particular bank on things like short sales, as well as its history of aggressive foreclosures as well as how heavy its foreclosure holdings are at the moment. The lawyer may even be personally acquainted with the loan officers or bank counsel who will be handling the underwater mortgage negotiations.
So, if you are a South Florida home owner facing negative equity in your home and an underwater mortgage, then maybe you want to consider your legal options.
Our offices offer free initial consultations. Please feel free to give us a call.
For more on underwater mortgages and the foreclosure process, see:
- Florida Real Estate Partitions And Underwater Mortgages: Are They Connected?
- Court Procedures That Can Delay Foreclosure
- Conditions a Bank Must Satisfy Before Filing a Foreclosure in Florida.
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