NO EQUITY IN A MARKET FULL OF EQUITY

“How the parties equity position affects your legal process.”

In our current 2023 market, most homeowners believe their property has equity, especially after our more recent COVID market, where values increased significantly in most areas of Dallas-Fort Worth, Texas. However, that is not always the case.

In our case study, we will review a property where the equity that may have been available was quickly dissolved by the nature of the case. Follow along to see how this case turned into a no-equity situation. Notice how the issues that arose significantly impacted the parties involved and how we recommend avoiding these issues in future cases.

The parties filed for divorce in August 2022. Shortly after the original filing, the parties notified the lender of the mortgage on the marital residence that they needed to take a forbearance. In this situation, the parties demonstrated to the lender a hardship, and the lender approved a 10-month forbearance. This delayed the monthly mortgage payments on the property until the parties could either resume payments or pay off the amount owed in full.

In July 2023, parties went to mediation and entered into a "Final Agreed Settlement Arrangement." In these proceedings, our office was appointed to list and sell the property. Our office contacted the parties in August upon receipt of the information from counsel. On August 7, 2023, our office walked the property in person to determine its condition as it relates to value. On August 11, 2023, our office conducted listing appointments with each party separately, where we presented their options.

Since the condition of the property had deteriorated during the last several months, the value of the property was impacted by the condition. We presented three options to the parties: full retail, an as-is sale, and a short sale. First, in our discussion, we discussed the full retail option, which included parties making repairs to items we recommended that would bring the home to the standard of other retail properties nearby. At the time of our discussion, the data indicated that if work was completed, the equity position could be as much as $40,000 or more. This was prior to the deduction of funds for repairs. Second, we presented the as-is option, which was a list price that was significantly discounted due to the necessary repairs. The property would not qualify for traditional financing because of the repairs needed. Thus, the buyer pool was limited to cash-only buyers. If the parties chose this option, they would be required, at that time, to bring to closing a little over $40,000 in cash to pay all fees owed. Finally, we presented a short sale option, where we list the property at a price that will cause it to go into contract, and then we present to the bank an offer, and the bank will determine if they are willing to reduce the amount owed so that the parties do not bring anything to the table.

The parties chose to pursue option one and began to gather bids for the work that was needed. On September 14, 2023, the parties were notified by the lender that a demand for payment of the full forbearance amount plus fees was going to be due just a few weeks later. This forced the parties to abandon option one and pursue option 3, a short sale.

In this situation, time was of the essence. Let’s break down what we mean about time and how the parties could have proceeded with option one if time had been on their side.

As the property had necessary repairs that likely would take an average of 8 weeks to 12 weeks to repair, the parties had an end date of August 31, 2023 for the forbearance. If parties agreed to make repairs prior to this date, they would have needed to start repairs in June at the latest. To do this, they would need the estimated value in May or even April. This would have then developed a timeline that could have been met for repairs and a full price listing of the property.

Another option would have been to agree to the short sale in July, list the property in July, contract, and submit to the bank for the short sale approval prior to the end of the forbearance period, thus preventing the beginning of the foreclosure period from starting.

Overall, our office recommends that parties and counsel engage our services as to value, condition, and market conditions at least 4 months before your scheduled mediation or trial date. If information is obtained that impacts the value and the estate’s overall disbursement options, it’s best to have options and time on your side to make these decisions. When up against a potential foreclosure clock, in Texas, you have a short window of opportunity to get the bank to accept another option in lieu of the impending foreclosure.

Our resources page allows you to request a fair market value report and title documents months in advance; simply go to our website and place your request to get the real property part of your case started. If you have any questions, please reach out; we are happy to help.