The house that Anna Bogaard-Hazen and her husband, Barry Hazen, bought on a cul-de-sac in Eldorado in 2005 had everything on their list of amenities — views, privacy, a pretty front porch.

In fact, when they first saw it, "Our jaws just dropped," she recalled.

Because others were bidding on the property, the couple paid the owners their asking price of $389,000 for the 1,800-square-foot house.

When they refinanced in 2007, the appraised value of the property had jumped to $460,000 and they thought, "Oh boy, we made a great investment. We were thrilled," Bogaard-Hazen said.

As someone who had moved a lot earlier in her life, Bogaard-Hazen was ready to settle down. "We expected to grow old in this house," she said. And with her new teaching career and her husband's promotion, they felt optimistic about the future.

Then the bottom fell out of the housing market. Like many other families around the country, the couple found themselves owing more than their house was worth — in this case nearly $50,000.

Then in April, Hazen lost his job and they could no longer make their mortgage payment, which was more than $2,000 a month.

Bogaard-Hazen, 41, said that as a level 1 teacher at Tierra Encantada, she makes $33,000, and it now takes her three paychecks to save enough money to pay the mortgage. She made the September payment in October but expects to continue falling further behind.

Hazen, 48, who worked for 30 years for a large, Denver-based company, now has two part-time jobs, one with the state Office of the Medical Investigator and a second with Double Take, a resale shop owned by a friend. But their combined incomes are not nearly enough to make their current monthly payments.

Last weekend, the couple began selling off their possessions at a garage sale ("We may even be willing to just give stuff away," Bogaard-Hazen said in an e-mail) and put their dream house on the market for $340,000, $38,000 less than they owe the bank.

By holding a short sale, they hope to avoid foreclosure and protect their credit rating.

They're resigned to losing their home — and the many interesting, one-of-a-kind possessions that fill it.

Options for when you're underwater

More and more, homeowners who are upside down are seeking short sales.

In the past, it was rare for lenders to agree, but because of changes in the real-estate market, they are more willing to accept less than the full balance of the loan at closing.

In February 2009, the Obama administration introduced the Making Home Affordable plan to stabilize the housing market and help homeowners get relief from mortgage payments they can no longer afford.

The goal of HARP (Home Affordable Refinance Program) and HAMP (Home Affordable Modification Program), two original components of MHA, is to help eligible homeowners at risk of default to avoid foreclosure either through refinancing or loan modification.

HAFA (Home Affordable Foreclosure Alternatives), which took effect in April, complements these programs by helping homeowners who were not approved under the refinance or modification options of the MHA program to avoid foreclosure through a short sale or deed in lieu of foreclosure (in which the homeowner transfers ownership of the property to the servicer). In a short sale, the lender approves the terms and accepts the payoff in satisfaction of the mortgage. And under HAFA, which will be effect until Dec. 31, 2012, the homeowner can receive financial incentives to help with relocation and other costs.

To qualify for a short sale, homeowners must be facing financial hardship, a shortfall in their monthly income and insolvency.

Recent statistics confirm the number of short sales is soaring.

They increased 42 percent in the second quarter of 2010 and were up 126 percent from a year earlier, according to the U.S. Treasury Department.

The Distressed Property Institute's website says more than 96,000 homeowners in the first half of this year were saved from foreclosure by short sales, although they still represent only 26 percent of overall distressed property transactions. A majority of people end up in foreclosure, or worse, abandoning their homes.

In Santa Fe County, there were 23 short sales in 2009, but this year so far there have been 39 successful transactions, according to Peter Kahn of Santa Fe Realty Partners.

What he finds staggering is the number of short-sale listings that expired. "They indicated potentially that a Realtor undertook the responsibility of trying to help a struggling homeowner avoid foreclosure and failed," Kahn said in an e-mail.

He recommends that property owners thinking about short sales should contact a qualified broker, preferably a certified distressed property expert. And homeowners should expect some very frank conversations with the agent.

Short sales are not easy, and they're not really short. In fact, they should be called long sales, Kahn said, because "while the bank is getting shorted, they take longer." It might, for example, be 60 days before the buyer or the seller gets a response from the bank to an offer, he said, and both sides need to be patient.

Fred Raznick, the agent acting for Bogaard-Hazen and Hazen, said he was representing a seller in a short sale that took so long that another department of the same lending institution foreclosed on the house — and then sold it for less than the offer on the table.

Foreclosure, he noted, "is not in the best interest of anybody," as this story illustrates.

Buyers and sellers also need to be well informed about the differences between short sales and other real-estate transactions, said Kahn, who is currently involved in four of them, one on behalf of a buyer. For example, banks don't lock in rates (not so much a problem now that interest rates are so low) and they won't pay traditional sellers' expenses such as tax on the sales commission, repairs or the cost of a septic permit.

And in New Mexico, banks can and do pursue customers for the difference between what they owe and the price their home sold for. It all depends on what they believe the homeowner can pay. Sometimes the deal requires the seller to sign a promissory note.

(If customers do not repay the lender, the money is considered ordinary income by the IRS and subject to taxes.)

Bill Enloe, CEO of Los Alamos National Bank, which has about $1.3 billion in mortgage loans and currently owns 52 properties, said short sales are a useful tool, both for the customer and the bank because they eliminate the costs of foreclosure or bankruptcy.

"If the instance warrants a short sale, we consider it," Enloe said. "Usually what that means is that the owner has no ability to pay the deficiency. If we're convinced that's true, we will consider taking the loss up front."

But the bank has to make sure it's not dealing with someone who simply wants to get out of their house and take advantage of the lender.

He expects the number of short sales and foreclosures to continue rising. Three years ago, "everybody was churning money. But those times are over. Everybody's learned a lot" since then, Enloe said.

The frustration of negotiating with lenders

For Hazen and Bogaard-Hazen, who expect to be rebuilding their bank accounts, a short sale makes sense.

But Bogaard-Hazen said she spent much of her summer vacation on the phone with lenders. Figuring that lowering their interest rate from 6 percent would help them stay in their home, the couple looked into refinancing. But they soon learned no bank would take a chance on them, even though they had previously paid on time. A local broker agreed there was "no way," but added, "let me know (if you succeed) because I'm in the same situation."

They notified CitiMortgage of their shortfall and applied to HAMP, the federal program that provides eligible homeowners the opportunity to modify their mortgages to make them more affordable. They thought they'd be a shoo-in. More than a million households have supposedly gotten relief from the program, but not Bogaard-Hazen and Hazen. They were turned down, Bogaard-Hazen said, because "Barry's job loss is no longer considered a sufficient hardship."

"The truth is," Enloe said, "most people don't qualify." In some cases, homeowners have assets the feds believe they should commit to the mortgage, and in other cases homeowners are unable to make even a reduced mortgage payment.

"Very few people are able to successfully modify their mortgages," Raznick confirmed. "That process needs to be streamlined."

On the advice of CitiMortgage, Bogaard-Hazen and Hazen applied to the lender's traditional loan-modification program and were told that process might take six months. Bogaard-Hazen's question was, "What do you expect us to do? Do you want us to go into foreclosure?" Eventually they learned they'd been turned down by CitiMortgage as well, although they never received a notice in writing.

Through sheer persistence, Bogaard-Hazen finally got in touch with the secretary to the director of the department that handles loan modifications, and a decision-maker from the short-sale department called her back. Working with Raznick, the lender agreed to a short sale and the couple listed the house recently. Bogaard-Hazen said it would have been better to put the house on the market earlier in the year, however, when more buyers were shopping for homes.

Although Bogaard-Hazen and Hazen are determined not to be shaken by saying goodbye to the trappings of their old life, Hazen said he resents the attitude of the lenders. He and his wife made all their payments on time, he said, "But the minute you get in trouble, they turn a blind eye to you. It doesn't matter how you got there."

Bogaard-Hazen added that she understands they made mistakes, too. "If we'd followed the traditional rule of thumb (20 percent down) we might have been better off. But we wanted this beautiful house, and we were greedy."

Financial distress rising

Many other homeowners in Santa Fe are obviously in distress. Reports from RealtyTrac for the third quarter of 2010 show that there were 293 properties in the county for which there were filings — either default letters, auction notices or bank repossession. (That compares to a total of 68 in the first quarter of 2008.)

The general manager for the Eldorado Community Improvement Association recently sent out an e-mail to residents asking for their help in identifying possible foreclosures and abandoned homes in the community.

While there are some vacant homes, Raznick, the agent working with Bogaard-Hazen and Hazen, said that he doesn't know of any that have been abandoned. But there are 90 homes on the market — a bit higher than normal — and another 13 under contract. Of those, he estimated six might be short sales and three or four are foreclosures.

"I think a lot of them have to do with speculation," Raznick said. "People from out of state bought, thinking they were going to be instant real-estate barons."

Another Eldorado homeowner facing foreclosure showed up at Bogaard-Hazen's estate sale last weekend — to commiserate and to shop. She said she feels angry and misled by her lenders. In 2007, at the height of the real-estate market, she and her boyfriend, a contractor, bought a house on a greenbelt for $460,000. Today it's worth only $330,000.

The original lender (Countrywide) was "very pushy" and the couple agreed to an interest-only mortgage, figuring "You can't go wrong with real estate."

Turns out, of course, that you can.

The couple never missed a payment even though the mortgage was close to $3,000 a month. But then the contractor broke his leg and wasn't able to work. And her income was sporadic.

While their credit was good enough to buy the house, she pointed out, six banks were not interested in refinancing their loan to a more manageable rate. And in July, the HAMP program turned them down too. A lawyer advised them to stop making payments, or partial payments, so that the lender (now Bank of America) would take them seriously.

The whole experience has been mind-boggling, the woman said. She wondered, "How can you say you're turning us down because we can't afford our house? Where were you in 2007?"

She said she kept getting conflicting information; paperwork was lost or misplaced and had to be refiled. In August, Bank of America finally said, "We have to tell you you're in foreclosure now."

Ironically, like Bogaard-Hazen and Hazen, she said she and her partner could have afforded a payment under the HAMP program, but at this point she said, "I don't know what our recourse is. We're exhausted. And we're kind of in denial."

Next: Housesitting

Holding a short sale is, of course, no guarantee of a buyer. Although Bogaard-Hazen and Hazen are pricing their house aggressively — at $349,000 it is well below the median price for the community of $379,000 — at the current absorption rate it might take five or six months to sell.

But if the short sale works, Kahn said, it does "far less damage to your credit, which could be repairable."

Meanwhile, they're looking for a housesitting gig for the winter while they get back on their feet.

Contact Anne Constable at 986-3022 or aconstable@sfnewmexican.com.



BY THE NUMBERS

7 million: Mortgage loans delinquent or in foreclosure process in U.S.

11.5 million: Number of U.S. homeowners in danger of losing their homes by end of the year

1 million: Homeowners who have gotten help from federal HAMP

39: Number of short sales in Santa Fe County in 2010

293: Total default notices, auction sale notices and bank repossessions in Santa Fe County in the third quarter of 2010

SOURCES: MAKINGHOMEAFFORDABLE.GOV; WWW.CDPE.COM; PETER KAHN, SANTA FE REALTY PARTNERS