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Posted February 6, 2009 | Copyright © The Northern Virginia Daily
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Help with housing: Homeowners should consider options long before foreclosure

Mike Cooper
Mike Cooper, an agent with Jobin Realty of Winchester, stands by a sign in Stephens City where a property he represents has been put on the market for sale or lease because the owners are facing foreclosure. Dennis Grundman/Daily

The owners of this townhome in Stephens City are hoping to sell or lease the residence in order to avoid foreclosure. Dennis Grundman/Daily

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By Ben Orcutt -- Daily Staff Writer

Representatives of local real estate agencies and mortgage companies are cautioning those who are contemplating renting their homes to avoid foreclosure.

"Unfortunately what happens with a lot of people is they wait until they're close to foreclosure to try it," says Mike Cooper, an agent with Jobin Realty of Winchester. "People are getting foreclosed upon with tenants in the house."

Cooper, like others in the housing industry, says some desperate homeowners feel renting their homes is their only hope of avoiding foreclosure.

"I have a rental property management company as well, and we have a lot of people calling us who either foreclosure is imminent or the house has been on the market for a year, whatever, some of them more than that," Cooper says. "They decided to rent them out until the market turns around, which has created a new phenomenon here locally. There are a huge amount of rentals available compared to what it would have been years ago. So it's kind of had the same impact that the oversupply of available properties has had. Now there's an oversupply of rental properties available, so it's taking longer to get properties rented than even a year ago.

"I just took one the other day that I'm renting out for somebody and they're $750 upside down on their rent. They have to put $750 into the rental every month to make it balance out."

One of the keys to renting a home to avoid foreclosure is to start the process before the wolf is at the door, Cooper says.

"What the people need to do if they think they're going to get foreclosed on and they want to try to rent their house out, hold on to it through this time, they need to do that probably three months sooner than they are because it may take two to three months to get it rented," he says. "This is a phenomenon I've seen in the past couple months that I hadn't seen for years. You can drive down almost any street in this area and see a 'For Rent' sign."

Donna Anderson, an agent with Linden-based Miller & Associates Realty, agrees with Cooper that more and more area homeowners are considering renting their homes to avoid foreclosure.

"Yeah, but now the rental market is being flooded with that type of property, so it's taking longer for people to find renters," Anderson says. "That's causing the foreclosures to go up. I know I personally had a rental, and it took me six months to rent it, and I had to drop my rental price quite a bit."

Anderson suggests that homeowners who are struggling to make mortgage payments contact their lenders before renting their homes.

"A lot of the companies will work with them to lower their rate to get them a payment that they can afford," she says. "A lot of people try to avoid contacting the mortgage company, but that really should be their first line of contact to deal directly with the mortgage company and explain the situation that they're in. A lot of them are willing to work with them at this point.

"I have about 34 foreclosure listings right now and most of the people did not even contact the mortgage companies at all."

Joe Clotzman, owner of the Cambridge Companies of Winchester, says it can be tough to rent a home and get the equivalent of your mortgage payment.

"If you've got a $1,500 mortgage payment, that's hard to rent," he says. "Most of the people whose mortgage payment is $1,000 or under, they're going to pay about the same to rent. Anything over $1,000 it's tougher to rent. Your pool is diminished."

Ryan Clouse, a mortgage consultant with Valley Farm Credit-Country Home Mortgage, which has locations throughout the Northern Shenandoah Valley, says it's always best for homeowners to contact their lenders if they're concerned about not being able to make their payments before they decide to rent their home.

"It's a benefit to communicate up front in that situation," Clouse says. "The big question is, what are they going to get out of that rent and where are they going to go? Overall, the rental market's depressed because there's a lot more people trying to do just that. ... Renting, typically speaking, does not make that payment on a property that you have purchased within the last five, six years because of the value of the home is driving the mortgage payment, which is going to be higher than their rental payment. If this was something that you bought 15 years ago and you were trying to rent out, make the payments, you could probably do that."

Clouse says that a typical mortgage payment on a $200,000 house with three bedrooms and two baths with 1,300 to 1,600 square feet is about $1,135 a month. That house will rent for about $800 to $1,000, Clouse adds, noting that the homeowner also will have to find a rental house themselves.

"It's something that you really need to think through what your end goal is because if you're trying to get a rental, No.1, it's going to take a while to get a renter in there," Clouse says.

Clouse adds that renters also need to do their homework to see if a rental property is already in the foreclosure process.

Cory Michael, president of CBM Mortgage LLC of Front Royal, says that some banks are willing to make loan modifications.

"The only issue with the loan modifications are some banks are willing to do them and then we'll run into other banks that just aren't at the point where they're willing to do it yet," Michael says. "Obviously, there's lots of stuff in the pipeline that the government's trying to do through FHA or HUD, but most of those products they're just still putting it to the lender to their discretion whether or not the lender is willing to modify the loans."

"The easiest and best thing to do is just contact the lender who currently has your loan," Michael adds. "Basically, they'll have them just verify income and stuff like that and they are doing some loan modifications on it to keep it from going into foreclosure, so that's always my first option. There are companies out there now that HUD has set up that will contact the lender on their behalf and try to negotiate with them. We are having some success with that, as well."

Contact Ben Orcutt at borcutt@nvdaily.com

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