I’m Upside Down On My Mortgage | Debt Negotiation Advice
I’m Upside Down On My Mortgage | Debt Negotiation Advice
What Is Being Upside Down On Your Mortgage?
It’s a pretty common situation nowadays that real estate values have dropped considerably and it’s known as being “upside down” on your mortgage. What this means is that the amount of money you owe on your mortgage is greater than the value of your house. If you’re able to keep meeting the payments and are not considering selling your house any time soon, then this is more of an unfortunate situation than a problematic one. On the other hand, if you can’t make your payments, mortgage refinancing is not an option because the amount of the loan you’d qualify for (based on the value of your house) won’t pay off your existing mortgage. If you’re trying to sell, the problem is similar, because the proceeds from the sale will not be enough to pay off your mortgage and will complicate things if you have to get another mortgage to buy another house.
Specifically, the people who have the most problems with being upside down on their mortgage are the ones that can’t afford the payments. What are the options that are available to them? Well since they’re in a financial situation where they’re unable to further service their debt, any solution will involve some measure of debt negotiation. Which solution is reached will depend on their particular financial circumstances, the position of their lender, and whether they’re looking to solve the problem quickly or are willing to drag it.
Debt Negotiation Advice
Negotiate with the lender to get a mortgage loan modification. The goal is to modify your loan’s terms in order to reduce your monthly payments to an amount that you can afford. Usually this is done by contacting the bank (by telephone or by writing them a hardship letter) and letting them know that you can’t afford the payments. They will respond by sending you a hardship package to fill out, so they have supporting documentation. The objective, for you, is to fill it by giving as accurate a description of your situation as possible, without trying to make them feel sorry for you. If you’ve done this well, odds are they will offer you a modified loan, the details of which you can iron out with them. Banks do not like having foreclosures piling up and are usually willing to renegotiate your loan with you. You should take advantage of that. On the other hand, you should not ignore the fact that some banks won’t listen to you unless you are behind on your payments. Essentially by paying you are demonstrating it isn’t a hardship, which is extremely frustrating when what you’re trying to do is a debt negotiation, out of good faith.
Do a short sale. If the lender refuses to modify you loan, you could seek its permission for a “short sale”, which in effect is a pre-foreclosure sale. You will have to find a realtor to represent you and sell your home short, which allows you to sell your house for less than you owe. You will be legally obligated to pay the lender whatever you sell the house for and the lender will forgive the difference. You get to walk away from the debt for less than its face value; the lender gets a good chunk of its money back, without having to bear the hassle and legal expenses associated with foreclosures. On a short sale debt negotiation the bank basically agrees (or settles with you) to take less money than what they are owed and the foreclosure is avoided.
Deed In Lieu Of Foreclosure. Simply put, you contact the bank and let them know that you’re giving away the house in exchange of you being cleared of the debt. It’s up to the bank to sell the house to recoup its losses. The lender will provide you with two (2) documents: one that states that the debt is fully canceled, and another one that waives the lender’s right to ask for the unpaid debt amount if it’s not recovered totally from the proceeds from the sale of the property. Banks often don’t accept this type of debt negotiation arrangement but it’s worth a try if all else fails.
Foreclosure. Technically, there’s no debt negotiation with this option. In foreclosure, the lender first sends you a “summons to appear” or “foreclosure complaint”. You have to show up in court and explain the problems at a hearing. If by any chance you become able to pay off the loan, it’s still possible for you to pay the full amount and get the house back during this redemption period. Once that period expires, the lender sells the property a public sale or auction. There’s no way to know in advance what offers the property will command, so here’s how it goes. If the property sells for more than the amount of the loan (plus all other applicable fees and costs), any excess goes to you, the original owner/borrower. On the other hand, if the sale amount is less than what you owe the lender, you will still owe the balance to the lender. This amount is determined as a result of deficiency proceedings.
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