Can You Repair Your Credit Score Sooner Than Your Home Will Regain its Former Value?
No light at the end of the tunnel? Just how important is your credit score?
Palm Coast, FL – October 21, 2010 – Never before in our lifetime have home values dropped so precipitously. Many homeowners are upside down with no good options. Bankruptcy, short sale, deed in lieu, and foreclosure all carry a stigma. But so too did divorce. Both marriages and mortgages are contracts. As divorce became more common, the stigma attached to breaking the marriage vows waned.
Increasingly, we have become more pragmatic. When all options seem bad, pick the one that is least bad. Which is worse; staying in a broken marriage or paying alimony for potential happiness? Are the children better off in a dysfunctional family or living with a single parent? Can I repair my credit score sooner than my home will regain its former value?
[I heard that last question just the other day when it was passed on by Ron Davis, A Realtor® friend of mine from Isle of Palms, near Charleston, S.C. Wild Dunes, where I once lived and where I met and married my wife, is on Isle of Palms.]
Some say, "My grandfather would roll over in his grave if he knew I defaulted on my mortgage." That may be true, but banks weren’t the same back then. Grandfather borrowed from a banker whom he knew, whose own depositors’ money was at risk, and who would own the note and accompanying risk until it was paid. Recent mortgages were initiated mostly by mortgage originators who earned a fee (commission) for a closed mortgage. The original lender promptly sold its mortgages off to an investment banker who repackaged them and sold them to private investment funds and financial institutions.
Don’t think lenders aren’t making pragmatic decisions every day. Should they initiate foreclosure but not go to summary judgment? Should they foreclose or seek a loan modification? Should they accept or decline the latest short sale offer? If they delay foreclosure, they don’t have to pay association fees. They simply do what is best for them. They aren’t trying to hurt the borrower, but sometimes borrowers become collateral damage of lender’s decisions.
I’m not advocating any one solution. I’m certainly not encouraging anyone to break a contract. Always seek both legal and financial advice from professionals (I am neither). Be sure you understand the legal, financial, and tax implications of your decision. Be pragmatic. Take your emotions out of the formula as the lenders do. It’s possible your credit score will recover long before the value of your home does. After seeking proper advice about your options, act accordingly.
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