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Saving a homeowner from financial disaster

Mortgage finance: Local couple starts a business to help residents deal with upside-down mortgages

Posted: January 1, 2011 9:05 p.m.
Updated: January 2, 2011 4:55 a.m.

Tim Blankenship, owner of the Santa Clarita Short Sale Center, stands in front of one of the many properties he has listed for sale, where he is in negotiation with lenders to approve a short sale. The short-sale option rescues homeowners in grim financial straits and minimizes damage to their credit.

 

Editor’s note: First in a two-part series on home short sales.

When the real estate market was good, it was very good.

And when the market plummeted into a freefall, with home values sinking and foreclosures proliferating, many homeowners found themselves upside down on their mortgages.

That’s when Santa Clarita resident Tim Blankenship and his wife, Elia, shifted gears, launching a business specializing in helping residents work through the nightmares of upside-down mortgages and foreclosure notices.

The expertise for their business came from their professional experiences. Tim Blankenship is a licensed real estate agent with Realty Executives of Valencia. He entered the industry in 2004, during healthy years in the real estate market.
Elia Blankenship has worked in the banking industry as a regional operations manager.

Combined, the two knew both sides of the short-sale business when they formed the Santa Clarita Short Sale Center.
The couple personally know the heartbreak facing a homeowner who is about to lose a home. They made the difficult decision to sell their own home using a short-sale option before the term became a part of the everyday vocabulary.
After their personal experience, the couple became advocates of short-selling.

They say it allows homeowners to take positive steps to rescue themselves from financially disastrous home-mortgage situations and minimize the damage to their credit.

Little did they know, Blankenship said, that short sales would soon comprise up to 60 percent of the local estate sales market.

Loan modifications

Tim Blankenship said he was an advocate of loan modifications at one time, believing the refinancing tool might help people stay in their homes.

But then no one knew how just hard the real estate market was going to fall, or that it would remain so deeply depressed.

“We all get caught up in the notion of saving our home,” Blankenship said. “But loan modifications are only good for a select few.”

For people who are upside-down on their mortgages, owing more than the home is worth in today’s market prices, modifying the interest rate and terms to match today’s prevailing rates doesn’t help most of them, Blankenship said.

“The only way loan modifications work for most people is if the bank cuts the principal balance down,” he said.

Selling short
Short sales occur when a home is sold for less money than is owed on the mortgage loan.

The tricky part is getting a bank to agree to sell the house for less money than the bank lent the borrower to purchase the house. This involves the bank essentially writing off a portion of the debt owed by the homeowner.

Initially, banks and mortgage companies were reluctant to pursue this route, stubbornly insisting that homeowners make good on their mortgage obligations or face foreclosure.

But as foreclosures reached record numbers, regulators began clamping down on the banks to improve their loan loss ratios, and loan modification programs showed signs of failing. Lenders faced the reality of a real estate market that needed a very long time to recover.

As short sales became a more common practice, delays marred the process as banks lacked the proper staffing to deal with the flood of homes facing foreclosure, or with homeowners and realtors attempting to negotiate a short sale.

“Banks are opening up now,” Blankenship said. “When there are problems securing approval for a short sale on a home now, it usually has to do with a lack of knowledge from the realtors.”

Foreclosure alternatives
When homeowners receive a foreclosure notice, they usually have one of two types of reactions, Blankenship said.

One reaction is to believe there is no alternative, moving out of the house prematurely.

The other reaction is to get help and find out what options they might have as a homeowner.

“Many people don’t seek information or ask for help and don’t even know a short sale is an option,” Blankenship said.

He said homeowners believe the 90-day foreclosure notices and move out of their homes too early because the only communication they receive is in the form of collection calls and letters.

“They shortchange themselves by trying to do the right thing,” he said. “But 99 percent of the time now, a short-sale agreement can stop the foreclosure process.”

Coming Tuesday: The short-sale process and effect on homeowner’s credit.

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