The Otterbein woman is worried. A starter home she bought in California three years ago as an investment is languishing. Apparently the property can be neither rented nor sold. And with house payments of $1,000 a month, she can't afford to carry it much longer.
"I'm afraid I'm going to end up in the almshouse. I'm very scared. It feels like it's completely out of my control. I never want my name on a mortgage again," she says.
Actually, the Long Beach home didn't seem like such a bad purchase when the young woman bought it in 1988. She was working in California at the time and prices were appreciating. At the outset, she had reasonable luck renting the two-bedroom home. But how could she have anticipated that a local defense contractor would lay off thousands of workers, causing housing demand in the community to plummet?
If she's like others who find themselves the unwilling owners of property in distressed communities, she'll simply stand by and let the lender take the home through foreclosure.
But foreclosure could ruin her credit. Furthermore, she could find herself liable for a "deficit" on the property. That would happen if, after taking into account expenses associated with the foreclosure sale, the lender got back less than the mortgage balance.
The Otterbein woman could spare herself some of the expense and aggravation of foreclosure if she walked into her lender's office and surrendered her house keys. Some homeowners are able to convince lenders to take their homes without going to court. In such a case, papers are prepared for the voluntary transfer of the property to the lender.
But remember that a voluntary transfer doesn't cancel out the debt. The young woman would still be responsible for any deficit on the property.
Shy of these worst-case scenarios, real estate experts offer the young woman several alternatives that could be less costly to her. They are:
* Raffling off the house through a charitable organization.
It will take imagination and hard work, but this option offers the potential to get back the mortgage balance at a minimum, says Carolyn Janik, author of "How to Sell Your Home in the 90s," published by Penguin Press.
You'll probably need to price raffle ticket prices at a minimum of ++ $100 each, says Ms. Janik, but while people wouldn't consider putting out that kind of money for a chance on a boat or TV, they'll do it for a home. "A house is still a big- ticket item -- even in a distressed community," she says.
Go to your favorite charitable organization -- church or scout troop for example. Convince the group leaders to sell raffle tickets for your property. Tell the group it can pocket any proceeds in excess of the mortgage balance. You can expect the organization's leaders to publicize the raffle among its members and perhaps advertise it.
"Allow at least four weeks for the raffle -- but no more than six," Ms. Janik says. People lose interest in a raffle that is scheduled too far in advance, she cautions.
* Offer down payment assistance as an incentive to sell your home.
That might attract people known in the realty industry as the "noveau cash poor." They have good jobs with decent incomes but lack the cash for a down payment on a home.
If you have enough cash to help, you could persuade them to buy -- even if your home is in a distressed neighborhood.
"The down payment is a very, very critical matter. It's the biggest problem most buyers have," says Peter G. Miller, the Silver Spring-based author of several books on real estate.
Granted, you'll have to extract a few thousand dollars from your already depleted savings account to help a cash-poor buyer with transaction costs. But if the alternative is to carry the house for months at a loss, which is better?
"The question is how to do the least amount of damage to yourself financially," Mr. Miller says.
* Rent your house -- giving your tenant a lease-with-option-to-buy.
In a normal real estate market, there's little reason for a home seller to offer a lease with the potential to buy the property at a fixed price within a one- to two-year period. After all, the renter retains an exclusive option to purchase the property and the seller is obligated to honor that commitment. What's in it for the seller?
But if a rent-to-buy option is what it takes to rent the house at all, it's worth it, says Ms. Janik, the real estate author.
Should you choose this option for a home in a distressed area, Ms. Janik suggests you set your rent at market level or just below.
Then advertise that you will let the tenant apply $200 to $300 of the rent toward a down payment on the purchase of the home -- at a specified price within a specified period.
"Even in a depressed rental market, this deal will be so attractive to someone that I really believe you'll get a tenant that way," Ms. Janik says. "And it might be the way to sell your property, too."