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UNDERWATER MORTGAGE

… house worth less than the mortgage?

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Think of it. Your house is worth less than the mortgage it secures. It’s called an “underwater mortgage.”  Not because you took out second and third mortgages, “eating your house” as it were – the house has just declined in value.  Like the following example:

In many ways, Matt Weber is the face of the suburbs. He’s got the standard package with wife Breanne, three cute kids and a very comfortable home. And, he’s dealt with a now very common problem.

“We had it for sale the day I was laid off,” he said about his last home. “We got with a realtor right away, tried to sell it, nothing happened.”

That house cost the couple everything. They bought it in Marshall, Minn. about four years ago, and had to sell it when Weber got laid off two years later.

“We were at $40,000 under what we owed for it when we finally did a short sale,” he said.

And they’re not alone. By one estimate, 23 percent of the homes in America are worth less than their mortgages.

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Seems like it would be cheaper to rent, eh? It’s so sad when people work so hard. It’s reminiscent of those who never splurge, and then get caught up with medical debt, in a way.

When Are You Too Far Under Water To Hold Onto Your House?

 monopoly-house-foreclosure-underwater-mediation-debt-reliefSome options are available to you if your house has a mortgage that is far greater than the value of the home, i.e., underwater.

Underwater Mortgage Analysis

Some are tempted to just walk away from a crushing mortgage. Bad idea? Still, if you’re going to default, do it carefully–

If your mortgage is more than what your house is worth, there’s no need to panic.  You just have to ask yourself a few questions:

Do you need to move now?  Is there any way you could stay in the house?

This answer gives you the framework for deciding what action to take.  If you don’t need to move right now, then there is no need to panic – as long as you can make your mortgage payments.  It would be wrong to think that the entire “buying a house” was a mistake.  If your plans are to remain in the area for a while, then don’t give up the idea that the value of your home will rise again.

A few decades ago, there was a savings and loan crisis.  The U.S. government responded by creating the Resolution Trust Corporation, which marshaled the assets of the insolvent savings and loans associations. Many of those assets were mortgage loans, secured by houses and other real estate.  It was the job of the Resolution Trust Corporation to “liquidate” real estate assets, i.e., houses, among other types of assets.  This process took from 1989 and is still going on today.

That’s a long time.

You may be surprised to learn that the value of the houses the Resolution Trust Corporation had on their ledgers went up.  The point is that real estate will generally rise in value, even if in the short term its value does not cover the mortgage loan against it.

All this is a very long way of saying:  Don’t get rid of your house just because it is “underwater.”

Is there a lump sum payment due on the mortgage that you will not be able to pay?

The second question affects your time frame for holding on the real estate.  If you need to either sell or refinance in two years, and the value of the home is less than the mortgage debt you must pay off, then considering a short sale may be an option.

Are you behind on your mortgage payments?

DO NOT DEFAULT ON YOUR MORTGAGE TO QUALIFY FOR HAMP.  In fact, do not default on your mortgage if it is at all avoidable.

If you are headed for foreclosure, then consider a HAMP application.  Another alternative is filing for bankruptcy under Chapter 13, where you can keep your house.  The only challenge in filing for Chapter 13 bankruptcy is you will need to start making mortgage payments right away.  If you can’t do that, Chapter 13 bankruptcy will not help you save your house.

Make sure any short sale agreement absolves you of any debt still owed on the mortgage after the short sale. Very important.

Immune from a deficiency judgment. It sounds like an assessment of one’s soul, eh?

If you have any questions related to foreclosure, foreclosure mediation, and short sales, phone Axsmith Law LLC at (202) 285-5415 regarding debt relief issues.

See the video below for one approach to underwater mortgages happening in the Boston area.

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