If My House Is Worth Less Than I Owe – What Are My Options?

If you’re upside down on your mortgage and can’t afford to or don’t want to keep paying your mortgage, you essentially have 5 options moving forward, which I will detail below. If you find yourself in this position, please PLEASE seek counsel from an attorney and/or an accountant. Each option below has tax implications, legal obligations and responsibilities, and a slew of other repercussions that may follow. You should understand each one fully before moving forward with any 1 of these:

1. Loan Modification
Sounds just like the name implies – changes or modifying your current mortgage situation to an affordable one. Sometimes they amortize the loan over a longer amount of time (i.e. 40 years) to lower your monthly payment, other times they may refinance the interest rate, or 1 of any number of different options offered by your particular bank. Read more FAQs from HUD.

2. Deed in Lieu of Foreclosure
When you take out a loan to buy a piece of real estate, the property itself is the collateral should you default on your mortgage payment. Therefore a Deed in Lieu means voluntarily giving the bank the deed or ownership of your property in exchange for a release from all further financial obligations. Read more FAQs from HUD.

3. Short Sale (also known as Pre-Foreclosure)
A short sale occurs when you sell your property for less than you owe the bank, and the bank ACCEPTS this sale as satisfying the mortgage debt owed. Read more FAQs from HUD.

4. Foreclosure
A foreclosure is actually an auction on the courthouse steps, which doesn’t involve the seller at all. This is where a seller walks away completely from the property and the bank auctions it off to the highest bidder. If no third party person buys the property at auction, the bank buys it. This is then called a bank owned, real estate owned, or common misnormer ‘foreclosure.’ Read more FAQs from HUD.

5. Bankruptcy
A liquidation of your assets, which are then distributed to your creditors. Your independent situation will dictate what type of Bankruptcy you file (ex. Chapter 7, Chapter 13, etc). To determine if this is the best option, your best bet is to speak to a Bankruptcy Attorney. Read more on the Basics of Bankruptcy.

If you find yourself struggling, please contact me. I won’t have all the answers, but I can help direct you to the people who will.