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Mortgage Underwater? Here Are Your Options


So, was 2005 the year that you dove in and bought your first house? How much do you wish you had had a crystal ball back then?

Don’t be too hard on yourself: NOBODY had the ability to see the future and nobody knew just how bad the housing industry would get. Homeowners from all walks of life have been affected by this—multi-millionaires and people who barely got into homes costing less than $100,000.

If your house is worth less money than you owe right now (a.k.a. underwater or upside down), it may seem like you’re throwing good money after bad and that you don’t have a lot of options. But you do have some, which I’ll lay out here. Research the options that appeal to you, and think carefully about what’s right for you.

Finally, keep in mind that when you’re underwater on your mortgage, your options vary greatly depending on whether or not your lender has filed a notice of default (NOD) on your house—the legal prerequisite for foreclosure.

Please keep in mind that I am NOT an attorney, and if you receive a NOD or are considering some of these options, you should ABSOLUTELY consult one, and possibly a professional accountant, too. Even if you think you can’t afford it and even if you think you can do it yourself. Banks prey on the vast majority of homeowners who don’t lawyer up because they can. Sometimes, just having an attorney at your side is all it take to get them to play fair.

That said, here are some options if you’re underwater on your mortgage:

WAIT IT OUT

This is a favorite option of ostriches. That’s right—stick your head in the sand and avoid the issue. This option works IF:

  • You’re not behind on the mortgage payments (and therefore have not had an NOD filed),
  • you have enough money to keep paying them, and
  • you WANT to stay in your house for a long time.

But who knows when your home’s value is going to come back up? Property values in some areas are starting to rebound but experts say it could be years before the housing market sees a full recovery. The truth is, nobody knows, so if you’re waiting for your home’s value to increase so you can sell or refinance, you could be waiting a long, long time.

REFINANCE

Sorry to break it to you but it’s not going to happen. In this economy, lenders simply will not refinance if there isn’t a sufficient amount of equity in the house.

RENT IT OUT

Renting the house out is a viable option in some situations. There are two important questions to ask yourself when considering renting your property out.

1) Would the current market rent cover my mortgage payment and then some?

Check Rentometer.com to find out what the current market rent is for a house of your same size in your area. Craigslist is another great place to compare rents. Keep in mind you’ll need the rent to cover your mortgage payment plus property taxes and interest, and an allotment for repairs and maintenance. That’s assuming you’re not getting any cash flow.

If you want to make a little money in the process make sure that what you can rent it out for is at least a few hundred dollars above your mortgage payment. If you have an adjustable rate loan, you’ll need to take some extra time to review your paperwork to see when the loan can adjust and how much it can adjust.

2) Am I willing and equipped to handle being a landlord?

If you’ve never been a landlord before, I’d suggest reading a book on landlord-tenant laws in your state and reviewing Rentlaw.com. It’s also a good idea to talk to a few landlords, if you know any, about the ups and downs they experience. You may be able to make a little extra money this way, but unless you pay money to hire a property management company, guess who’s going to get called at 3:00 am when a toilet gets clogged? As a landlord, you’ll be responsible for marketing, screening tenant applications, choosing a tenant, collecting payments, making sure the property is continually safe, making (certain) repairs and if necessary – evicting, at your own expense.

TRY A LOAN MODIFICATION

“Try” being the key word here. People who have missed mortgage payments and are facing foreclosure seem to favor loan modifications, most likely due to the promise that they’ll be able to stay in their homes.

According to Aleksandra Todorova of Smart Money, “It should come as little surprise that with few lenders reducing principal—and most tacking on fees to the loan balance—nearly half of loan modifications (45%) actually resulted in increasing a borrower’s monthly payment.”

Loan modifications may reduce monthly payments for a period of time, but they will never address the underlying problem: negative equity. The other thing to note about loan modifications is the qualifications. If you’re unemployed, you can bet that you probably won’t qualify for a loan mod.

Still want to try a loan modification? BEWARE SCAMS! If you want a loan mod, contact your lender directly, get a trusted attorney, or go through a Department of Housing and Urban Development-approved counseling agency.

FORECLOSURE (OR WALKING AWAY)

Let’s face it, nobody wants to say the “F word”. And, in most cases, you should try to avoid foreclosure. The recent housing crisis has changed that for some people, however, with a growing number of homeowners simply walking away from their homes.

If you’re considering walking away, remember that a foreclosure record can damage your credit for up to seven years, according to the National Association of Realtors. I’ve heard some people say “I don’t care if my credit gets damaged because I don’t want to buy another house for a while.” What you must realize, however, is that your credit also affects your ability to rent an apartment and even, in some cases, get a job. (That said, given the recent housing crises, foreclosures may not carry the same stigma they once did, and provided you have income, you may find landlords and employers willing to listen to your story.)

Though best avoided, sometimes it may make sense to let the bank foreclosure and move on rather than spending money and time fighting to save a home that’s just not worth it. Most people have an emotional attachment to your home, but if you can come to the realization that you can make a happy home someday somewhere else—and somewhere you can AFFORD—foreclosure may not be such a bad thing.

DEED IN LIEU

If you’re far behind on your mortgage payments and know you won’t be able to make up the deficiency, you may consider a deed in lieu of foreclosure. With a deed in lieu, you voluntarily give the deed back to the bank.

A deed in lieu will also negatively impact your credit, and you’ll forfeit any equity in your home (which isn’t an issue, of course, if you’re underwater). Your bank may give you up to $3,000 cash to help rent an apartment. Note, however, that you can only get a deed in lieu if you have only ONE loan on your home (so if you have multiple mortgages or home equity line or loan, you can’t qualify).

DO A SHORT SALE

In a short sale, the lender accepts a purchase price of less than what is owed on the property. The short sale process involves listing the property for sale with a real estate agent, finding a buyer and having the agent submit the buyer’s offer along with a “hardship package” to the lender(s).

The process still damages your credit, but typically not as badly as a foreclosure. With a short sale on your record, it’s clear that you were actively participating in trying to solve the problem, rather than walking away. The National Association of Realtors states that with a short sale, you may be able to buy a home again in as little as 24 months but with a foreclosure on your record the wait could be as long as seven years.

Short sales are great when they work, but you first must find a buyer and get your lender to agree to sell the home for less than you owe. Finally, you may be required to pay federal income tax on the difference between what you owed on the home and what it was sold for…an amount that could total tens of thousands of dollars…so it’s wise to check in with a lawyer or CPA if considering a short sale.

A NOTE ON BANKRUPTCY AND UNDERWATER MORTGAGES

Being underwater on your mortgage by itself isn’t a reason to file bankruptcy. In fact, although bankruptcy law has provisions to help you stay in your home, consumer bankruptcy is really designed to help you deal with unsecured debts like credit cards and medical bills, not mortgages. In all cases, bankruptcy should be a last resort and you should always consult a qualified bankruptcy attorney before taking action.

Are you underwater on your mortgage? How are you handling it? Please share your story…

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About Sarah Davis

Sarah Davis is a real estate broker in San Diego, Calif. She enjoys helping both buyers and sellers and was voted one of the top 10 best real estate agents in San Diego in 2013 by Union Tribune readers. In her spare time she talks about real estate on a local radio show and manages her website RealtorSD.com.

Comments

  1. David Weliver says:

    This is a topic affecting so many people right now, including those who “did everything right” OTHER than buying near the top of the market which, as Sarah says, there was no way to know.

    I also have an inside look into thse problems because my wife leads a court-sponsored program here in Mained designed to provide mediation between homeowners in default and their lenders to avert forelocusre. Mediations may result in modifcations or deeds in lieu, while others continue to foreclosure.

    Based on her experiences, there are two things I would recommend:

    1. If you’re facing foreclosure, get a lawyer.

    2. Don’t stay in your home if you can’t afford it.

    The first point is self explanatory.

    The second one almost nobody follows because we get emotionally attached to our homes and the idea of home ownership. If you’re upsdide down on a mortgage and considering leaving your home, remember that YOU and your family make a house (or an apartment) a home…and you can build another home that you can afford once you pull through this. Good luck!

    • David

      i agree; “IF you face foreclosure…get a lawyer” is ‘self-explanatory’…. very very few ‘other options’

      and #2 is fine advice; “Don’t Stay…..” What this article was trying to discuss was HOW to find a path to accomplish such a departure without severely damaging your future, nor without paying still more expenses in hopes that someone or some handout, bailout , or new advice will surface that will miraculously reverse the market and restore your losses…

      i have some suggestions that have worked for me personally , which have kept me from the problems associated with any market turn down,(…even this one) and have made it very very easy to purchase ALL my properties for less than market value, and for very very good terms on the mortgages too… and none of these methods or strategies involves negative amortization, nor ‘sweetheart deals’, ANYONE can choose to do the same…yet can save substantially on other costs as well ,such as lowering any Real Estate taxes (legally) and obtaining ‘better ‘ insurance for your home at lower prices than required by lenders in deals today….
      i would love to try and answer any questions about the “HOW’ normal people can find out more about these types of strategies (…they are NOT “one size fits all.. so you need to customize strategies you choose to fit your circumstances” ) i think anyone interested in “getting out” should consider trying to do so with the least cost, and with the least amount of damage to their future….. maybe even turning around a home that some consider “underwater” without the threats surrounding a short sale, or trying to ‘walk away’.

      • Bill, I found your response intriguing as you seem to suggest that if one needs to get out then to do so with the least cost….If that is possible, can you suggest ways to sell a home that is $175,000 under water? Or is it better to rent out? What would you recommend? For us, we need to be closer to work and the cost of living in our under water home, plus mileage into work does not add up any longer. Any suggestions?

  2. 1.1 Realize you will have to pay to get a lawyer.

    It sounds obvious, but as an attorney that practices in this area, I am astounded at the high percentage of people that call for assistance and expect me to work for free.

  3. Well I think it depends. A lot of people can’t afford to pay attorneys fees but some can. I work with two real estate attorneys/brokers in San Diego and we do a lot of short sales. If someone decides they want to do a short sale we’re not going to charge them anything – we get paid by the lender when the transaction closes successfully. But I agree with you Brian that your time as an attorney is valuable and especially depending on what you’re doing, the pay is going to vary.

  4. I’m paid the same way with shortsales. I’m mostly talking about judicial foreclosures.

  5. Understandable :)

  6. “NOBODY had the ability to see the future and nobody knew just how bad the housing industry would get.”

    With all due respect, this is simply not true; the worst is still yet to come.

    http://www.youtube.com/watch?v=jj8rMwdQf6k

  7. why is everyone ignoring the fact tat ALL of this is ECONOMIC TERRORISM.. of course, home owners could NOT predict that they were being ‘scammed’ into bad mortgages, at inflated prices, ….they were ‘blinded’ by the scams (i.e. the offer of Easy money & Ponzi-style expectations…. all greed!
    but… now that all hardworking Americans have paid dearly, it’s time to wake up and start ANEW!!
    The ‘threat’ that you will have ‘trouble’ buying a home for many years after you find a way out of your debt-trap is TOTALLY FALSE! …that’s only if you try to get the scammers (lenders,FHA, etc.) to back you again in buying another home. YOU already made that mistake once! …it is insane to try the same methods and expect a different result (besides; if you had ANYTHING left for them to steal, they would TAKE that too; that’s why they ‘require’ 20% down to get a new ‘scam’ mortgage.) The government already gave ALL YOUR money away to their friends at YOUR expense…NEVER TO BE SEEN AGAIN!
    YOU CAN ALWAYS buy a home from anyone who has a home for sale that they own or are willing to finance with you… ANY TIME, ANYWHERE, RIGHT NOW….IF you have a job ; YOU can get into a home YOU can afford…really! …there are MANY strategies and methods available between BUYER/SELLER which end up with great profits for them BOTH and much much less profit for Brokers, Lenders, Banks and Government (..the true Economic Terrorists)
    You just need to explore your REAL options; and DO THE MATH …get yourselves back to reality and leave behind the SCAM-AMERICA DREAMS they sold to people for too long…
    Did you notice ALL those people made money off you to begin, and now they want to make more money off “helping YOU” get out alive!!??? …i DON’T think so….

    • Wow

    • You sound like you watch too much Fox News.

      • ….was there a thought, question, or something additional that would lead us to anything helpful to you or others? Are you recommending less news or someone elses slant that agrees with some observations you have on the financial problem? I’d much rather hear your own conclusions, not any parroting of any news organizations…
        How much of which news would be “about right”?

    • Very refreshing…. This is really, ‘thinking outside the box’.

      • Thanx Mel for your comment… it’s much MORE refreshing to take ACTION “outside -the-box” …even better than merely Thinking OTB…

        Find out HOW! …ASAP!

  8. Wow is right! Bill, you seem to make the assumption that every homeowner who is upside down was scammed. While there was some preditory lending, which I agree, was horrible (I’ve warned people not to buy a house even if they have a pre-approval when they’ve told me they can afford less) – its just not the case that everyone was scammed and no one in America understood what was going on or what documents they were reading. They simply didn’t know that the market was going to collapse. Or they got houses they could afford and then lost their jobs and had to stop making payments.

    Additionally, I think the word “terrorist” does not work here. Period.

    And the idea that everyone could just walk away from their loans, have a foreclosure on their record and buy another house with seller-financing is not logical. I say that with respect but also knowledge, as I work with seller-financing all the time (I buy notes). As a seller, the responsibility is to check the buyer’s credit among other due diligence. I would never carry back to someone who walked away and had a foreclosure recently because the note is going to be much riskier.

    Its a sad situation yes, but we have to be realistic about the options.

    • let me be calm and clear for you… I do NOT make any assumption that every homeowner was scammed, (not all are underwater, or unable to make payments EVEN THOUGH THE ENTIRE ‘Market” has broken down COMPLETELY …i use the word “completely” since the only real estate deals being done seem to be on Bank Owned Peoperty, short sales, and foreclosures ; not too many regular deals of people makinng a move UP to nicer housing opportunities….
      NOT saying “NO one in America Understood the documents…” But i am insinuating that those that participated in these scam loans did NOT realize the consequences of their own decisions IF and when there was a slow down in the ‘market’… or the crazy effects on ‘sub-prime’ in a down market….
      In all respect back at you Sarah, …I am suggesting to any sellers that they DO their own ‘DUE DILIGENCE ” on a persons ability to repay, but that the selling contract include a ‘quit-claim’ provision that totally protects their seller financed note in the event that the buyer somehow has a problem like losing their job, ….the quit-claim alloows the SELLER to take back his home AND ASSUME the low rate financing obtained by taking back 30% of the contract price in a second-seller financed note) This provision allows the seller to walk away with 70% of the sale price in his hand , yet still have a nice payout of his other profits backed by his own property… it would NOT be smart to try and sell this second note to anyone else ( i noticed you said “i buy notes” so this might not see the great advantages to the seller.
      so… i amNOT asking you to make a decision ‘NEVER’ to carry back a note from someone who walked away from a home, nor had a forclosure…. what i am saying is for the greater part of Americans who have a job and the desire to buy a home, that they are not able to secure good financing in todays market (EVEN THOUGH SOME GREAT HOMES ARE AT RECORD LOW PRICES>>>) that they should explore the GREAT ADVANTAGES of SELLER- FINANCING ….advantages for BOTH the seller and the buyer
      WOW…. PERIOD

      …just another “realistic option ” for your readers to explore… not any threat in that, eh?

      • Bill,

        Could you explain this “quit-claim” provision in a bit more detail? It sounds like you are describing a contract for deed situation in which if the buyer defaults, the seller gets the property back and keeps all the payments made to date.

        However, those are simply not enforceable in many states if the buyer has built up sufficient equity. Many have statutes requiring the sellers to proceed under the mortgage foreclosure act in such a situation.

        I’d also be curious to know how the sellers (since most will have mortgages of their own), get their lenders to agree to waive the “due on sale” provisions that are in most mortgage loans.

        • Brian
          …it’s a bit harder to ‘give details’ on the complete legal wording (since, as you correctly point out, states and laws vary , as well as change their laws and the enforcement of them too easily to rely on them for ‘protection; ..i recommend a lot of ‘due diligence’ to sellers, and a careful legal advice from attorneys that can help you write an ‘iron-clad’ course of action should there be some hang-ups from your buyer …YES; …my basic modus-operandi is to recommend a ‘contract for deed’, or ‘land contract’ or whatever is called for in your state ….and i DO have some specific ‘remedies’ that solve many of the problems that could develop (such as the buyer ‘building up ‘sufficient’ equity’ ….or states which might ‘require’ sellers to proceed under ‘foreclosure’ rules… but that would need to be state by state .

          and.. I am NOT trying to solve ALL foreclosure problems, NOR suggesting that there is a new way to do ALL real estate deals…. I am suggesting that MANY sellers could incorporate in their Due Diligence that there are ways to avoid some “Due on sale” provisions that would allow them to assume the low rate 1st mortgage financing without it being legally a ‘sale’ (…hence the use of a quit-claim in some states) …but there are also ways to get refinanced that might cover that possibility I it occured….
          You are a lawyer, yes? ,,,don’t you think you could help write such wonderful protections for BOTH the seller s and the buyers, that would solve many of these problems BEFORE they occur? Rather than charging people who are already in the toilet financially…
          Many sellers, even if they have mortgages, are not without equity enough to walk away with taxfree cash after paying off their existing principle, and still carry a great ‘note’ as a further ‘investment’ in their own sale…
          again, i say do the math…. but your suggestion to get answers to foreseeable situations , and legal advice on avoiding complications is appreciated.

          • “I am suggesting that MANY sellers could incorporate in their Due Diligence that there are ways to avoid some “Due on sale” provisions that would allow them to assume the low rate 1st mortgage financing without it being legally a ‘sale’ (…hence the use of a quit-claim in some states)”
            In many states, transferring the property by quit-claim would still be a default under the original mortgage loan. Even if not, I would advise any client against buying this way. If the seller still has a mortgage, it doesn’t matter whether he quit-claimed the property to you, the bank can still foreclose and take it from you if he fails to pay the mortgage.

            “Many sellers, even if they have mortgages, are not without equity enough to walk away with taxfree cash after paying off their existing principle, and still carry a great ‘note’ as a further ‘investment’ in their own sale…”

            Where are they getting the money to pay off the existing principal balance?

  9. Brian
    …we are not connecting on our logic and train of thought…
    I am NOT suggesting that the seller quit claim to you (a buyer client of yours) …i am suggesting that the seller include in the original contract a quit claim that would allow the SELLER to take back the home in the event of any failure to pay either of the mortgage notes, or failure to pay taxesor proper insurance on the property (..no matter what the cause….) In my own dealings, i have always included this provision which allows the seller to re-aquire the home without disturbing the first note (which he (original seller) would have to start making the payments on in the event your buyer had trouble…) …and also allows the buyer to avoid going into any costly foreclosure procedure due to his inability to keep up his payments… in all cases, however, the original seller would keep all the payments made on his 2nd note, and would keep any downpayment money as well as any principle payout that was made on the first mortgage and all improvements as well as value that may accumulate on the property (…i think these very very low prices will eventually turn around)
    follow this math on paying off any existing principle balances; assume our seller still owes 100K on a 7% note (originally 200K / 30 yr.from 1990) seller sells his home for todays market value of $300K but only requires 10% down (30K from buyer) and gives a 2nd note at 5% interest only for 4 years to the buyer for 60K …the buyer goes and gets a 5/1 note from a lender for the remaining 210k (which means the 1st note is based on a 70% LTV to the lender) ….our seller would have, in hand, the downpayment CASH (30K) and the first mortgage proceeds (210K…) all taxfree on the principle residence tax law… and from this amount (240k) he would pay off his own principle owed of 100k
    …in the end, our seller has 140k TAXFREE cash AND also a 60K note paying 5% for at least 4 years…. and this deal is protected by the carefully and skillfully written ‘quit claim’ protection in the land contract…. buyer has a super home yet has little downpayment cash invested (could easily be lowered even further) and very very low payments each month …and would be crazy to volunteer to let the circumstances allow the use of the quit claim provision… the reluctance of the buyer to lose all his payments and downpayment, as well as the favorable notes situation on his home would be adequate ‘protection’ for the seller to feel confident enough to hold tht second note ( AND walk away with that 140K CASH!!!
    this is a quick thumb nail sketch of a deal… i have made much much better deals with a bit of tweaking,,,…. and i mean ‘better deals’ for BOTH the buyer AND the seller simultaneously.
    might take a little bit longer to show how that works…

    please don’t be so quick to advise any client not to buy this way… it has been very very usefull to me BOTH as a buyer and a seller in FLORIDA and NY over decades… and once in North Carolina too

    • Ok, that is different than what I thought you were suggesting. It’s more like a seller financed second mortgage. I didn’t think the regular banks would be a part of your strategy since they are the “economic terrorists.”

      However, even in this case, some states (I know Illinois’ statute would I haven’t reviewed Florida’s or New York’s) would still require foreclosure rather than enforcing the quit-claim provision in the event the buyer defaults. Also, banks in Illinois (and I would assume most other states unless they just like taking unnecessary risks) would require the seller to sign the mortgage on the $210K loan given he has to assume the payments in the event of buyer’s default.

      Though a 4 year note for $60K at 5% interest would make monthly payments of $1,132.27 and the $210K would be $1,127.33 per month assuming 30 years at 5%, which I don’t consider “very very low payments each month”

      All in all, this isn’t a bad strategy if the Seller is comfortable taking on the increased risk.

      In any event, I think most of the people who can afford a $30K downpayment plus $2,259.60 per month ($1,132.27 per month on the $60K note plus $1,127.33 per month on the $210K note) plus the taxes and insurance aren’t going to have trouble getting conventional financing. If they are, they would probably have trouble getting the $210K loan in the first place.

      • Brian
        >>>thanks so much for letting me ‘explain’ this strategy to a skeptical yet reasonable person like you.
        …and i hope others can at the very least have another ‘option’ to consider rather than the “Sophie’s Choice” they see today…

        a bit more clarity on the ‘terms’ should bring you into MY fold for sure…..
        regarding the “increased risk” that the seller takes by financing that second note; …i think there is almost NO RISK of losses since the seller has 3 “risk avoidance” things going for him right from the start; 1. He is out of that original 7% note. in our example. so, IF he had to ‘assume” the new payments on what’s left of the new $210K note …those payments would be lower than his original note!! 2. The monthly payments on the sellers 60K second note are NOT $1132 ….the note is interest ONLY for the 4 years!!! …then a baloon or re-fi is due …but the monthly payment for our buyer is ONLY ….$250 each month!!! …and it is ALL tax deductable if you itemize!!! So our buyer is getting into a $300K home with only $1400 per month…AND still paying down $400/mo. OFF the principle of the first $210K note!!! NOW, do you think these would qualify as LOw LOW payments!!!????

        3. The ‘chances’ of our new buyer ever making ANY of the provisions that would require the ‘protection’ afforded our seller by the quit claim deed are EXTREMELY LOW… since the new owner would never allow the fantastic affordability and low cost of the home he has obtained at such a super LOW price (historically) to cause him to loose ALL that downpayment and Equity build!

        …and you WOULD BE correct that it would be very difficult to get that first mortgage if he had to include (legally) a monthly payment of $1132 in his monthly budget… but i’m sure the lender (our potential economic terrorist) would be very favorable to a 70% LTV loan protected by a 30% downside to THEIR market appraisal!! …and That is NOT terrorizing to our buyer either!

        again, i’m glad you are open to some ‘out of the box’ strategies…. the ‘inside the box’ ones don’t work nearly as well as hoped for most people.

        • Interest only certainly makes the payments much more attractive. However, to say it is “almost NO RISK” to the seller is just kidding yourself.

          The buyer may still default. He may be stupid to do, but things happen. Jobs are lost, accidents can cause huge medical bills, etc. If that happens and everything works perfectly according to plan, the Seller is still losing out on the $60K note. Sure, he may be able to get a judgment against the buyer, but good luck trying to collect on it.

          Where he would have had $200,000 from a straight sale, he now has $30,000 plus the house and a new debt of $210,000. If he is able to sell it again for $300,000 than he’s $30K better off, but this is ignoring any fees and costs of sale like real estate commissions (assuming 6% each sale he’s spent $36,000 on commission an additional $18,000 over a straight sale). And the seller has to pay all the property taxes and insurance after the default.

          The seller is also taking the price risk. Home values could still decline even more. Many think that they have hit bottom, but prior to the crash they also thought they would keep increasing as well. If prices go down, and the buyer defaults, he’s in a much worse position that had he just sold the property in a straight sale. It is certainly a risk. The chances might be small, but to claim it is not a risk is just silly.

          This also assumes the seller doesn’t need all his principal now to use on the purchase of his new house (he’s got to live somewhere).

          And I haven’t even mentioned the time value of money aspects of the loan.

          • ..once again we are NOT on the same page with your math… please re-check your math

            If the buyer loses his job , and even though there is such low low cost per month to keep the house payments going, (at only $1400/mo. for P&I !!!! ..it does NOT take much income to make it all possible even in bad times (that is much lower than even straight rent would be!!!) but supposing it becomes necessary to default ….my math shows some VERY different figures on the possition of the seller who now would have to make the payments on the first note he would “assume” …about 1200/mo P&I …remember that out seller has, in hand, the downpayment (30K ) PLUS the difference between his old mortgage payoff (100K) and the new 1st mortgage (210K)
            Can you see that our seller ‘s worst case scenario is that he gets back into a $300K home VAJUE , with a low rate 1st mortgage IN PLACE, (which has a much LOWER payment than his old 7% note had!!!!) …and he also KEEPS ALL the $140K in Cash that he took in TAXFREE!! …So the only “loss” he would suffer is waiting for the 5% each year on the 60K ….there is NO LOSS on the 60K 2nd note because he has the home BACK!!! ZERO-SUM-game
            …and i do NOT recommend you do this with anything through REAL ESTATE BROKERS… simply because there is no need to pay 6% going into and out of every transaction… that’s the dinosaur -method of doing realestate.

            and i haven’t even pointed out the real values of getting ALL your profits TAXFREE ….nor the major major advantages that both parties save on realestate taxes and insurance as well….

            are light bulbs going off yet????

            i sure don’t think my thinking is “silly”…. do U?

            This has been fun for me Brian, i wonder why some other people habe NOT weighed in with a question or an opinion?

            Price risk is another discussion i’d love to have… But this method protects both the buyer and the seller JUST IN CASE…. there’s nothing like it!

            keep your questions coming, i have a logical answer to ‘em all…. it’s just SOLID SMART

  10. Your calculations are still assuming the value of the house stays the same. The value can drop.

    Also, you are correct that the seller would assume a lower payment, but he would also be assuming a LARGER total debt.

    I would be interested in how they are going to save on taxes and insurance. Why would the price of either change based on having a conventional loan versus a conventional first mortgage and a seller finances second mortgage?

    I do agree that it is better to not go through brokers (and their rates are outrageous and should be changed to a fee for service rather than straight percentage, but that is another discussion).

    I’d also like to hear your comments on the price risk. Since, as you say, it is extremely unlikely for anyone to default on such a great deal, we can assume that the buyer will not default if prices are going up, but will be more likely to default if the prices are dropping rapidly (since he would owe more than the property was worth). The Seller is taking all of the risk of the price dropping while getting none of the benefits if it increases.

    How is the seller protected from a collapse in the price? If the 300K house drops to $150K (which has happened in some areas), and the buyer walks away, the seller ends up with the house ($150K) plus the downpayment (30K) plus the money left after paying off the original mortgage (140K) minus $210k in new debt. He’s got a net of $110K (and now owes the property taxes and insurance) whereas he would have $200K just selling the property and would not owe any property taxes or insurance.

    BTW since you keep mentioning this is all tax free. I must point out that while most of it would be tax free (assuming the requirements below are met), but the 5% interest he is receiving on the 60K note is not tax free. It is interest income and must be reported on your tax return. Failing to report it is tax fraud.

    However, selling the house in a straight sale would be completely tax free (assuming the requirements are met of it being his principal residence for 2 of the last 5 years, net gain under $250K or $500K if married filing jointly, etc.)

    So your tax free argument is moot, as both are mostly tax free and the straight sale would incur less tax everything else being equal.

    • Brian
      You are so very impressed by your own demi-inteligence that you are making it very very hard to counter all the incorrect and utterly useless propaganda with reason, logic, math and truth. There is so much self deception in your last four responses (it’s like you suddenly have diarrhea of the mouth out of your own fear of seeing something new in my proposal…?? calm down, listen
      let’s go paragraph by paragraph; 1. I never assumed or stated that the value of the home stays the same…. values can drop…mitigate it’s effects
      2. …yes i am correct, they would have a MUCH lower payment/mo. if ‘seller’ had to “assume” the house back, BUT the seller has 140K in cash that he didn’t have when he owed less principle (plus any equity build from principle pay down by our buyer. so he technically got a 210K re-fi at a much lower rate and much lower payments PLUS about 40K in Tax FREE cash…. NOT TOO shabby!!!
      3. of course the real estate taxes can be changed, but if you think they can’t be changed THEN; please don’t start out saying you’d like me to explain and then try to counter something before you even give me a chance at showing you HOW!!
      4 …again; thanks for agreeing
      5. you have to ‘let me comment on price risk” before you try to contradict ….yes i did say it was ‘unlikely for our buyer to default on such a great deal… yet he is just as ‘unlikely’ to default as prices MIGHT go down… My Proof; even in light of a ‘massive FALL FROM extreme HIGHS” and in the face of holding ARM mortgages at high interest rates, and with huge unemployment jumps… people were avoiding default so much that they even stay in 23% of the homes in America while ‘technically UNDERWATER” …and making huge monthly payments even after losing ALL their downpaymentAND equity!!! In MY deal the buyer would NOT be UNDERWATER technically unless the price dropped MORE than 10% from the great deal he got it, at with the lowest prices in decades, no real estate fees, much lower closing costs…and extremely LOW payments!!! BTW; The selller has the same risk that he has right now regarding the “market value”… If our seller tried to sell NOW without my ideas he would most likely NOT be able to get our buyer financed at anything near the payments that intice the buyer to my deal, and would NOT walk away with even close to 200K cash.
      6 …wow! would anything in real estate survive a 50% drop from here in value… ??? MAYBE a Meteor strike tommorrow is more likely BUT , again, how long would your proposed drop be around… one year or two even, or are you saying it is going to go towards ZERO FOREVER, with NO RECOVERY??? GET REAL!! YET; even IF prices went that low in 4 years the principle owed would only be 185K on the first note, and rememnber YOU still have the house and $140K in the bank!!!
      YOU can NEVER get defaulted on your home…FOREVER!!! Think about that one , son.

      7. YOUR “BTW” paragraph; why do you feel you “have to ” point out that the 5% per year (250/mo.) is NOT taxFREE…. You have alot to learn about seeing the big picture and holding your tongue when you DON’T ; i am correct that the $30k CASH is TAXFREE, …and the $210K was tax free (but you had to pay off the original 100Knote… and when you get your $60K in 4 years or sooner, it too will all be taxFREE , but you feel that you need to point out that the 250 each month is NOT taxfree!!??? WELL, BRIAN, IT IS FOR ME BECAUSE I HAVE NO TAXES To PAY ON MY INCOME AFTER I USE ALL MY DEDUCTIONS>>> I will even make a deal 4 years in advance so that you will be guaranteed a refi of the $60K at ZERO closing costs …on your choice to make the $60k in to a 15year note at 5% or get a better deal elswhere ( ….tell us the downside of that!)
      THIRD REPLY: are YOU nutz… YOU would take out the $60 k loan ONLY because it is $250/mo. tax deductable INTEREST ONLY FOR FOUR FREAKIN’! YEARS!!! …and NO PROBLEM refinancing (see above)
      BTW… you will NEVER be forced to forfeit anything, and certainly not “if you miss a payment”
      i will dare to say, the quit claim deed would probably NEVER need to be “ENFORCED” at all, but, as the seller, it certainly takes away any “risks” of being misunderstood…

      Does Everybody Think so NEGATIVE and FEARFUL in California? …open your eyes; the sun will come up tommorrow…. and YOU could live in Florida some day….. ZERO STATE INCOME TAXES!!
      G’nite

      • Nice to see you resorting to ad hominem attacks rather than using real logic.

        1. Yes you did. You said you’d get the 300k house back. That is assuming the house stays 300K.

        2. If you read, you’d see I took the 140K cash the seller received into account.

        3. I asked why they would change, and you still haven’t answered.

        4. No comment needed.

        5. It is a fact that owners are more likely to default when they are underwater. That is proven by statistics and logic. When you owe more than it is worth, you don’t lose by walking away.

        6. I’m not making any prediction about the housing market. I just gave a hypothetical situation. It is possible. Huge drops have happened before, they can happen again. Many people never thought the values would drop as much as they have. They were wrong.

        7. I had to point it out since you are erroneously claiming it is all tax free, and are now just trying to cover yourself by claiming you have enough deductions that you pay no income tax (I highly doubt that anyway, but whatever).

        Under your quit claim provisions, default forces you to forfeit everything… the seller gets the house back and you lose all you have paid. Last time I checked missing a payment is a default. Further, why bother with the quit claim if it will “never need to be enforced”?

        I’m not in California, but you’d already know that if you actually exercised reading comprehension.

        Anyway, I think this conversation has run its course. You’re obviously not willing to engage in a polite, rational conversation.

  11. Again, I don’t think it is bad strategy, I just think trying to play it off “almost NO RISK” is deceptive. There are certainly risks and convincing people otherwise is a big reason we are in the situation we are in. i.e. everyone (lenders, buyers, etc.) was convinced prices would continue to rise so making (or taking out) 100%+ loans, interest only loans, negative amortization loans, weren’t risky because the prices would make it easy to refinance later or sell later and make a profit.

  12. And since I’ve been looking at this from the Seller’s side, I’ll switch to the buyer’s perspective.

    As a buyer, why should I take out a 60K second loan from the seller if I am required to forfeit everything if I default? If something happens and I miss a payment or make a late payment or interest rates rise and I can’t refinance the 60K loan when the balloon becomes due, I lose everything. How is that protecting the buyer?

  13. And again, many states (maybe not Florida or New York as I haven’t checked their statutes) wouldn’t enforce the quit claim portion.

  14. To be totally honest, Bill’s seemingly RANDOM capitalization of WORDS causes him to lose some credibility and makes his arguments somewhat hard to follow.

    • sorry Katy …it’s another bad habit i have, trying to show the main point i want to emphasize.

      like they say
      ” sometimes i put the acSENT on the wrong syLAHH bull”

      like the AT lanto POE leese

      …keep trying to understand, and be like Brian and ask questions if it’s not clear enough, or you’d like me to prove what i say is possible…. it’s worth the exploration AND it’s all FREE (ooops, there i go again)

      G’nite

  15. strange

    when i come up with a plan that completely refutes the hopelessness of the basic article we read… an article written by a person who makes a living off selling real estate for the banks (while the rest of the real estate market lies in ruins because the banks won’t lend to regular people …and a lawyer whose first comment about the article was to tell people to be prepared to pay him if they expected a way out of default??? …but who continuously made assinine statements about a valid plan of action that gets instant financing at reasonable rates yet completely cuts out the banks, RE brokers , and debunks the scare tactics of those profiting from these terrible economic times…
    …and yet the only comment is that my plan has “seemingly Random capitalization of WORDS ” why would that make my plan lose any credibility or damage my arguments…. and why would the comment have to start with the words “To be totally honest”??? …wouldn’t that mean that the comments are obviously DISHONEST… ??? i will check this site for anyone who would appreciate getting wonderful financing to purchase a home, despite being denied by banks…. or those that would love to Maximize their TAXFREE returns on homes they would like to sell but can’t obtain financing for their interested buyers from the banks…
    enjoy
    BILL
    ps. no wonder Illinois is in such trouble too

    • ==================================
      “yet completely cuts out the banks,”
      ==================================
      Really? So who is lending the $210K in you hypothetical?

      It’s inconsistent statements like this that make people like me question your strategy, and your tendency to attack anyone who disagrees with you rather than backing up your claims shows that you aren’t capable of doing so.

      ==================================
      “a lawyer whose first comment about the article was to tell people to be prepared to pay him if they expected a way out of default???”
      ==================================
      Oh, so you do your job for free? That would explain why you don’t pay any income tax.

      • again; …was the first comment as i said it was?

        …yes, as a matter of fact any suggestions i make are absolutly free. as opposed to “ambulance chasing” comments in your answers… and if you review YOUR answers, they invariably admit that you did the math incorrectly, or had assumed something that was not stated, or you admitted you flat out didn’t know what the laws were in specific states, but “felt ” that your own state wouldn’t enforce a valid quit claim deed… wonder why they even exist, don’t ya? …and why do land contracts exist… you never see a bank use them either… Hhhhhmmmmm, something smells awful.
        Do you think there are no other sources of financing than banks? …of course i would go to the best source of lending at the most reasonable rates (YES, IF a bank was willing to loan the required amounts at the lowest rate i’d use them… But since they are making it almost impossible for people to qualify for their lowest rates… i have come up with an easier and less costly answer for both buyers and sellers…

        and finally; i thought you said you were done with this conversation, my last statement was my offer to discuss this with anyone interested in finding out what i’m suggesting FOR FREE…

        If there is anyone out there who doesn’t want to be assaulted by an ambulance chaser…

        …that taxx- thing bothers you, eh?

        sorry, you don’t need to respond to that …your focus speaks volumes for you… let someone else have the floor…

        • ==================================
          “but “felt ” that your own state wouldn’t enforce a valid quit claim deed… wonder why they even exist, don’t ya? …and why do land contracts exist… you never see a bank use them either… Hhhhhmmmmm, something smells awful.”
          ==================================
          There’s your lack of reading comprehension again.

          I never said I didn’t know why quit claims deeds exist. I asked why it exists in your situation, since your are certain the buyer will NEVER default. It’s pointless to have one if you are correct.

          In your hypothetical, I don’t “feel” my state wouldn’t enforce the quit claim provision, I know they wouldn’t. They have a specific statute preventing such a forfeit in the event of default. They require the seller to proceed under the foreclosure act. I know many other states have similar statutes. I have not specifically looked at Florida or New York, but I am not afraid to admit that, and I have openly said that all along.

          ==================================
          …yes, as a matter of fact any suggestions i make are absolutly free. as opposed to “ambulance chasing” comments in your answers
          ==================================
          I asked if you work for free not if your suggestions are free.

          ==================================
          “my last statement was my offer to discuss this with anyone interested in finding out what i’m suggesting FOR FREE…”
          ==================================
          I am interested in finding out what you are suggesting, but instead of answering my questions you insist on attacking. Try answering them.

          ==================================
          Do you think there are no other sources of financing than banks? …of course i would go to the best source of lending at the most reasonable rates (YES, IF a bank was willing to loan the required amounts at the lowest rate i’d use them… But since they are making it almost impossible for people to qualify for their lowest rates… i have come up with an easier and less costly answer for both buyers and sellers…
          ==================================
          This is one of the questions I’d like an answer to. Can you give me some examples of non-bank lenders who are willing to loan $210K at 5% interest fixed for 30 years?

          ==================================
          If there is anyone out there who doesn’t want to be assaulted by an ambulance chaser…
          ==================================
          For your information, I don’t practice personal injury law, so I couldn’t be classified as an ambulance chaser, but I am glad you continue to show your class by attacking me personally rather than actually responding in a rational and coherent manner.

    • =====================================
      “ps. no wonder Illinois is in such trouble too”
      =====================================
      Nice straw man.

      However, I do agree that my state is in trouble, but it is interesting to note how well Florida is doing. Florida has the third highest unemployment rate in the US and is nearly 3% higher than Illinois (11.9% versus 9.0%), and Florida has one of the highest foreclosure rates in the country.

      • …exactlythe reason i offer my thoughts about a dire shituation for free….

        lots of people want to get out of banks and lenders control down here… and i have done exactly that for decades…. very very comfortable thanks, and i am telling even those who have been forclosed or underwater that there is a better way for them to explore FOR THEMSELVES…. I will try and answer any question and give them enough information that they can decide if it might work for them… and for FREE
        …there you go …agreeing with me again! it was a “NICE STRAW” . Give someone else a chance will ya?

        • ==================================
          “Give someone else a chance will ya?”
          ==================================
          Given your propensity to launch into personal attacks on the people who question you rather than answer the questions, I doubt your going to find many people who want to jump in.

          I’m only still here, because it is entertaining.

  16. Salman Khan says:

    Perfect Work Sarah. Do not sit at home and relax if your home is getting foreclosure. Just do something to stop it.

    • SK …that’s exactly what we are discussing; “do something”….but sure would like to know which of the ‘options’ suggested you have used, and how we all might get around some of the ‘problems’ that each solution mentioned…. most people i see did not just let ‘foreclosure’ happen to them…. they could not re-fi nor “qualify” for one of the government mitigation programs (many without any change in their income at all… just got ‘ate-alive’ by the rising payments and sagging ‘appraisals’ for re-fi. … so how do you suggest they ‘stop it’ or avoid going further in the process in this market?

  17. Good point about how many homeowners don’t fully consider the ramifications of foreclosure. A big hit to your credit score can affect much more than just buying a home in the near future. You need to consider auto loans, ability to secure a desirable rental, obtain student loans etc.

  18. Need some advice to who I might contact first to look into my options. Bought a condo to work my way into a house, now I owe nearly 40% more than the property is worth. I will take a huge loss to rent it out, so I don’t consider that a viable option. FYI, I am having no problems paying so a modification seems unlikely. Do I contact a lawyer, CPA, short sale realtor, or am I missing something else?

    • Kelly
      I check out this site to see if anyone would actually like to ‘explore’ some options that have worked very well for me for decades, and can be adjusted to fit some very different ‘conditions’ (such as all the changing tax laws, bankrupcy laws, real estate market trends, mortgage rates and “qualifying”…

      when i read Sarah’s article, i was stunned that instead of offering options to mitigate problems, the suggested options always seem to end badly , as with the option of obtaining a re-fi ends with with “it’s unlikely,But good luck…”

      i believe you need to explore some ‘options’ that you will not find on the internet because they do not make money for lawyers, brokers, banks, or the government… but they can be customized by you to avoid the dead-end solutions that exploit your situation…

      In your situation; you say you have no problem making the payments…. fantastic! you will not face foreclosure… But do you even need a ‘modification” (..that depends on your present note) …would any modification somehow change the fact that your principle owed is nearly 40% less than what someone said is the ‘market value”?? …i think it wouldn’t change a thing? But there are ways to ‘sell’ a condo or property for much more than the “market value'” and yet not require lawyers,brokers,or huge bank fees and closing costs (saving your potential buyer and you lots of CASH…) please explore some of these strategies for yourself… and there are many strategies that could be used by you to get that home you said you are trying to work your way into…. and several options you might consider that would easily ‘solve’ some of the problems you may have had getting into that home too, such as the problem of a downpayment, or ‘qualifying’ for a new ‘low rate mortgage’ or perhaps that home was overpriced at the time you felt forced to buy that condo…
      so, don’t be paniced into contacting a lawyer, CPA, short-sale realtor, or any other expensive option that would not resolve your issues…. explore some other options and use only the strategies that you understand and work in your situation …

      • I keep reading about other ‘options’, but still the information is not readily clear or available. Does anyone know more about these options? If so, can anyone direct me to a website?

        • I agree…what are these options! Please explain who we should contact that isn’t a short sale realtor in these situations

        • …the new Options and strategies are NOT on a website or in any article written by those who are causing ‘the problems”or are able to make money off the situtation today …but they are available just for the asking ….but you must ask me directly since any posting of my contact info seems to trigger a removal of my ‘comments”… scroll down to a comment made by ‘MIKE” ….my answer, including some contact info, made it through in that response. look forward to hearing from you…

  19. Hi Kelly,
    Good question – Generally I think it’s a good idea to have an attorney review your situation as well as have a Realtor on the team to do the short sale should you decide that that’s best for you.

    What area are you in? I may be able to refer you to one. If you prefer, you can email me or call me instead. Contact info is on the bottom of my website – http://www.RealtorSD.com

  20. I’m in a situation similar to Sarah. We bought our townhouse in Prince William county (northern Virginia, VERY hard hit by all this). We thought we were being very smart about it – we bought when the prices were starting to come down (I think we closed around September 2007), we did NOT borrow as much as lenders told us we could “afford,” and we kept to a 30-year fixed mortgage (though we did not put any money down as part of a first-time homebuyer’s program).

    This modest townhouse was supposed to be an investment and only our 5-year plan before moving up to a single family home. We now find ourselves still owing about $266k on a townhouse that would probably only sell for at least $100k LESS than that.

    However, since purchasing, we now earn a higher income. We have no difficulty making our payments; this simply isn’t where we want to be long term while raising a family. If we were to try renting out our home, rental income would likely fall short in covering all monthly home expenses (mortgage, insurance, taxes, HOA) by about $500 per month.

    Now, I see nice homes in better locations (Loudon County, Fairfax County) that we could easily afford at our current income level…if we weren’t stuck with this townhouse. I fear that if we wait a few years for our home’s value to increase (which I really don’t see happening short of 10 more years or so in this county), then the homes we view as affordable now will have also increased and will be out of our reach.

    I get very frustrated that there seem to be at least some options for people who weren’t smart about their home purchases, but I feel like we did everything “right” (short of being economy or real estate market experts), and now we’re just screwed.

    • Correction – similar to Kelly, not Sarah.

    • Jill
      All is not lost, and you can find a solution to your personal situation IF you get a better understanding of both the real estate market & the economy as it functions today for people in your situation… and “do the math” on some newer strategies that specifically avoid some of the drawbacks embedded in the ‘established’ methods today…
      Those methods are designed to make money for those in real estate sales and service like brokers, banks, lawyers, mortgage lenders and banks…. and our government gets a huge payoff every time they make money (their income taxes) and the local governments get more and more asthe real estate taxes go up and up on more and more expensive homes. Nothing too wrong with this until the market starts to fall apart (like now!) But the real problem is that all those in the real estate biz, as mentioned , they are NOT the ones who get hurt the worst in the fall; the brokers and lawyers lose their great income (but they already have your cash), and the lenders and bankers don’t lose until YOUR equity is totally wiped out first. (all those principle pay downs and down payment cash, and improvements totally wiped!) ..then the bankers can be bailed out by tarp and even write-off their losses in foreclosures and bankrupt properties they own (send YOU a 1099 for the difference too!)
      why not find a way out without using these people to get a better deal? a deal t5hat leaves YOU protected AND in control …as well as”free” from your present situation, to pursue the real home of your dreams. You can surely see that , for those with cash and freedom from an old higher rate mortgage, that there are super deals on just about everything… it’s a buyers market.
      observe; Your bank pays 1% to you for savings right now , but you pay 6% on that oversized underwater mortgage…. is there a way to stop that hemmorage? …yes If you tried to sell, deed in lieu, shortsale, etc. …you lose and can destroy your credit. Are there ‘other ‘ ways to sell…? YES, even in this market! You can help a buyer to get a great deal on YOUR place and still set yourself free.
      once you see the positive effects of NOT using banks and government to support your real estate purchases (…at least NOT in the same way they use YOU to support their income today) You can again pursue your own dream of home ownership …and control your expenses so that YOU get the advantages for home ownership FIRST, not be the last on the list to benefit yet first on the list to lose your equity.
      The ‘steps’ to financial freedom are not that hard to understand, but they do require you to think outside the box and choose pathways that your personal wants and needs… There is probably someone who would love to live in your home now, and help you move to where you want …without all the losses embedded in the real estate system right now. Good Luck

    • Jill

      Did you find a way to sell your TH at a much higher profit to you than you’d imagined, even in this market?

      Were you able to take your savings and whatever profit you may get from the TH and find your dreamhome… and also get into that dream home for a discount to “the market” AND do that with very very little downpayment, and get fully financed at great LOW rates , …and even lower payments than you could have ever expected on your new place (…while you use most of your personal savings to create years of even lower monthly payments, BUT still keep ALL the tax deductions!!??

      If NOT, why NOT?? ….There are many simple , legal, and logical ways to get yourselves OUT of the place that you feel “….just screwed”

      but you need to get away from the vultures of this old real estate scam-system, and learn a few new ways to keep those in control of the real estate mess from controling anything in your deals, either in selling your old TH, and also in creating the right finances for buying your dreamhome.

      it’s so easy, but you must design it to fit your own present circumstances….

      once you see the entire picture and ‘do the math ‘ for your own circumstances; you can confidently put your own financial plan to work FOR YOU

      get out of that financial trap you are in right now…. only you can make that move

      • Bill:
        About what you wrote to Jill….
        How does one do this? We are in a similar situation as Jill and others….bought a new home in 2007 that is worth at least 100K less than we owe. They are still building in our subdivision–brand new homes selling for a LOT less than we paid when we moved in here.
        We can still afford the payments, but wish to move so that we can be closer to our daughter’s school. We already lost over 30K on our last house just to get out of it in 2007. Now we’d lose over three times that just to be able to leave this property…. We’d love to just break even, not even hoping to make a profit because that’s a joke!

  21. I’m so torn right now…. Paid $320k for a condo in Southern California in 2007. Latest assessed value (per County tax collector) is $170,000. We put nothing down – and the loans are pretty much interest only. We have another 5.5 years before the payment “balloons”. It wouldn’t be so bad if it wasn’t for having to pay HOA dues. Total monthly output for mortgage and HOA’s is 2,100 (not including property tax/insurance as those are paid annually).

    I love my home and was adament to stay, but I’m just over the whole thing. I tried a modification last year when my boyfriend ‘s hours were cut at work and I was finishing up grad school, but they just jerked us around. Now, of course we don’t have a hardship persay -I make plenty of money but darn it I don’t think it’s fair for the mortgage companies to get all of my money. I want to be able to buy “stuff” and take trips and participate in the many athletic events that I do.

    The other end of the coin, is that I am completely unhappy in my relationship and want to get out. I know he won’t leave – but he also can’t afford the place on his own if I leave. I could probably cover the whole thing – if we were to get some sort of modification and he would agree to Quitclaim the house to me and I would agree to continue to pay as to not screw up his credit since he’d still be on the loan. (He is immature, showing alcoholic tendencies and has anger issues – so I can’t address this with him.)

    I thought about skipping the next payment on the first and seeing if they’d at least talk to me, but I am still confused as to what to do. Such a tough situation and I just don’t know where to turn.

  22. Aw Dean, I’m so sorry to hear that. You said you don’t have a hardship per se, but it sure seems like you do to me. I think sometimes people think that their hardship has to compare to someone elses, but it really doesn’t and you’re going through a lot right now.

    If you want to give me a call or email you can. I don’t know what part of Southern California you’re in. I think it might be nice for you to talk to an attorney since your situation is a bit more complicated and get a little bit of legal advice . Many attorneys will give you a free consultation. I can help you with a referral there if you want, or if you don’t want it, that’s fine.

    Either way I do wish you the best of luck in all your decisions and just know that you aren’t alone.

  23. My situation has let me to depression, sleepless nights and constant anxiety. In 2006 I bought high into a Coop. A small older townhouse. Two major things happened since. First, unbeknowst to me and my realtor the entire structure of 160 buildings has a major, major infrastructure problem. The plumbing and sweage lines, electrical, and gas all need complete replacement, costing 5.5 million dollars for the 160 shareholders, many already behind in the monthly dues. Second, the reputation of the buildings’ infrastructure accompanied by market collapse made my property drop 50%, and I can not sell without being underwater. The loan would rise the monthly fee to about $1000 on top of my mortgage.
    The silver lining is a corporate takeover. We recived an offer on the property that if accepted would pay off my mortgage and earn me about $30,000. We need 2/3 of the 160 units to vote yes. A small band of residents are trying everything they can to prevent this from happening, preferring the 5m loan and keeping th houses intact. Theyre threatening a lawsuit, though 3/4 requested contracts to get out and have the homes razed for luxury apartments.
    Best case scenerio: we sell, and the nightmare is over. If this does not happen I have no idea what to do. That loan, combined with my salary and bills would plummet me into bankruptcy and i cant sell the place. Is this a situation for walking away?

    Thanks! Im very, very worried about this.

  24. Jo Walls says:

    I’m hoping someone here may have some advice.. I bought my condo in June of 2007 for $400,000 in a very nice area of Orange County, thinking that I got a good deal. It was a bank owned property and they agreed to less than the listing price. NOW I am $100,000 underwater….. I CAN afford the payments each month but I do not like living here anymore and would like to move… however, i will lose so much money if I do. I have thought of renting my place ,but i could get only $1900 per month and my total payment including my 1st, 2nd, HOA and property taxes is $2800 per month…..I would be having to cover a negative of about $900 per month on top of my new rent or house payment if I did this, which I can NOT afford.. I feel like i’m stuck… I really want to move!! Any advice??

  25. Not only are we underwater but we have an interest only loan the resets in 2013. If we continue to pay it is going into a black hole. The principal is NOT going down. In 2013 the rates will be higher. Chase does not want to help. We are going to WALK AWAY.

  26. Great informative article. My husband and I bought our house in 2005. I am part of the problem from quitting a good job because of family issue. The only way we’ve been able to stay afloat is because we’ve been using credit cards to help pay for things, but we make sure we are able to pay off our cards every month. Even with excellent credit history no lenders will help us with the situation we’re in, so you are right that we just need to wait. I tried loan modification but they lost our papers. There are programs out there but lenders do not want to participate because they’ll lose the money, or the shareholders will. .

  27. Not sure what going to happen a year from now r even two years but the game is a no end in sight thing like many others we all scared to death of what may hold later on down the line, I still have a job, but bills have gone beyond my control, my hrs are cut, my house note went up cause of taxes, home owner ins…. I can’t even buy food to feed my family because I have to pay my bills to stay ahead… Doors have been close for help every one said no ref. no nothing even chase said no so I have no choice but to leave all this in the cold just so I can live what left of a normal life… Going to see a lawyer say F*%# all this before I lose my mind… can’t win people we are going down without a paddle!!!

  28. Has anyone looked into a negotiated short payoff on a second mortgage? Any feedback? Who might be a good resource to consult? Accountant? Lawyer? FYI. Non-recourse state with all “purchase money”.

  29. SS… just got your e-mail, and would like to help with advice on “strategies”that might be able to fit your situation; ..the idea is to find a way to qualify for a re-fi orget out of present money drain that has no end… relieve the strangle hold of your higher interest note (even if it takes some savings to pay down the remaining principle to lower the LTV on your new note) do the math; instead of getting 1% on your savings now, you will pay off some of your 6% note and refi the remaining principle at a lower rate too, and by stretching out your amortization you will have much much lower payments per month…. you can easily regain access to your savings as necessary through a HELOC which will easily help you make the monthly payments even lower strain on your ‘budget’ …don’t ever be afraid to just walk away if you are underwater… the ‘threat’ that you will ruin your credit is a total lie; …i can show you how to easily get 100% financing on a great home with almost zero qualifying problems, and much lower taxes, insurance, lower closing costs, etc. ….just don’t rely on the banks for an 80% loan that will put you back in the same sinking position… seller financing is the answer; for both the buyer and the seller! …both get a much better deal, and cut out the banks AND the government leeches…. most of the strategies are ‘counter-intuitive'; meaning they seem a bit far fetched till you see the math for yourself… get free from slavery ASAP…

    • Bill, Sarah, group…

      My home would sell for around $170K. My remaining mortgage is $245K. I have 50K savings in the bank. My wife and I make good money and want to move our family to a bigger home. In general terms, how could we set up an owner-financed mortgage and a HELOC to get out of our current mortgage with as little risk as possible? We live in MN.

  30. Help. We purchased a development in 2005 for approximately 300,000 to later find that the real estate market would crash. Along with this re did a supposedly remodification on our home. The initial loan was 125,000. We have been paying on this home since 1997 and still have a balance of 124,600. Our credit score is only 502. And just realized we have a ballon payment in 2019 with a balance of 114,000. please help if you can.

  31. Date: Tuesday, October 4, 2011, 12:45 PM

    Mitzi…. please don’t believe you are trapped in a losing position… There are many ways for you to get into a great position as a buyer and as a seller, depending on ‘if’ you want to remain where you are or not… the key is to learn new strategies that do NOT rely on the thuggery of the real estate markets right now. You must learn to use owner financing to your advantage in both selling and buying real estate today.  The benefits are truly amazing and can completely stop the stealing of your equity by  bankers, brokers, lawyers, fannie and freddie, and allow you to get what you want at low low rates, with little to zero cash downpayment, and EZ qualifying too…   Get the facts , do the math, verify alll the benefits and get yourself free from this BS market they have trapped you in… truly , it is the bankrupt banks, and our bankrupt government that are in the unsolvable predicament… you have the choice to go play elsewhere…  do it before they steal your grandkids future as well.

  32. Bill wrote to SS:
    “i can show you how to easily get 100% financing on a great home with almost zero qualifying problems, and much lower taxes, insurance, lower closing costs, etc. ….just don’t rely on the banks for an 80% loan that will put you back in the same sinking position… seller financing is the answer”

    OK, show me Bill.

    Is is case by case, or is there a cookie cutter approach to this?
    Are the applicable properties only those that state “owner financing available”, what about those listed with real estate companies?
    Do you have a way to make contact outside of this forum to walk me thru this process – I am also in Florida and upside down, and in dire need of getting out of this house.

    • Mike….
      Correct… These various “principles, Strategies, and ‘course corrections’ i can explain are used on a case by case basis; …that’s because everyone one has very different circumstances in which they live now, and even more varied ‘solutions’ that would lead to their personal ‘ideal situation’ …so there is no one particular solution that fits all; but these solutions are very very easily understood, mastered, applied and customized to perform for whatever situation you find yourself in… some are easier than others, obviously, since personal conditions are vastly different ( for example; there are ways to do away with ALL Massachussets state income taxes… but not everyone wants to merely move to Florida or NH (…but your individual circumstances and wants might make that a possibility to investigate ) …that one suggestion does not apply to you, MIKE, since you already live in Florida…. but many more choices can make Florida much much better for you, including learning how to use the new homestead exemptions better, cut out the banks, get low rate financing, get out from under an “underwater situation”, lower your hurricane insurance costs while getting much better coverage…
      CORRECT AGAIN MIKE; …the methods i have discovered for solving so many ‘real estate problems’ DO INVOLVE owner financing possibilities, to drastically lower the lawyers, bankers, insurance and real estate broker costs…but there may be other methods that i have not used myself; i’m not a genius, just have found methods that work… very well.
      write me at wrein@juno.com and i’ll explain more about applying some ‘strategies’ to your situation. BTW; …YOU can use these principles to help sell your ‘underwater’ home , and they might even completely reverse that situation without the big losses , and without killing your credit score with short sales or foreclosure… hope i can help you

  33. kenshaw jeanne says:

    If u need a reliable and genuine loan help for any purpose,and don’t want to be a victim of loan scam,I think this is for you.All posts of loan lenders giving loans on-line especially on these sites are SCAMS..The referrals here as well are bunch of scammers.Don’t contact them for your own good.This is a story of how I was ripped off my hard earned cash by some idiots on-line that calls themselves lenders and how I finally got my financial freedom from a God sent loan officer within 36 hours at just 5% as interest.For more info and interest,email me via “kenshawwjeanne@gmail.com”

  34. I can understand your frustration because there are alot of people out there try to scam a person in trouble. However, for the people with underwater mortgages. IF they do get refinanced they still will owe MORE than the house is worth.

    AS for the post further up on seller finance. The only problem with that is the payments are still financing a larger mortgage balance (once again paying on a house that is upside down)

    There is a program that can help you and the others. I think the company is Freedom USA Investing and they help people with underwater mortgages. They are able to put equity back in the property. The website is “refinanceunderwatermortgagehelp” {dot} com.

    It might help the others. It’s worth a try.

    • James… It’s nice to see someone respond with a few real suggestions, and a basis for their suggestion rather than just dis-agreement with others. Since i wrote most of the advocacy of the seller-finance posts ; please allow me to answer your view on “problem” regarding both the payments and the “larger mortgage balance” you mentioned…
      When owner finance techniques are used, the entire contract including the terms of the financing can be customized (easily and safely) so that payments can be much much smaller than any conventional mortgage note, also owner financing can actually encourage a lower contract price (therefore lowering the balances owed, as well as taxes and insurances (which are usually based on the contract price &/or the mortgage amount)
      With owner financing there are considerable savings in acquisition AND ownership costs…with MUCH less cash needed to close, And considerably less QUALIFYING or need for credit checks…. and , as discussed before, The calamities to both buyer and seller can practically be eliminated…
      one thing is certain; the buyer would never start out “..paying on a house that is upside down” ….who would start that process, by choice…??
      I have not checked out that website, but i am very very wary of any promise to “…put back equity in an underwater property” …How and Why would anyone try to do that in this market?
      There are some interesting sites and forums where you can learn the many various owner finance strategies that are available and being done every day… i personally recommend that people , even those underwater or foreclosure victims, consider learning a few possible strategies to fit their desires and situations, and fully investigate before ‘taking the plunge’ Good advice is always welcome, thanx James

  35. I am a 60 y/o. I refinanced in March 2008 to use equity for home remodeling. Boom went the market. Remodeled anyway. Current loan amount is 216000 and value (unappraised) is 169000. I am thinking about refinancing by paying down the principle to 80% or 85% from other funds. What are the advantages and disadvantages of such a plan? Do I get a tax deduction on a loss for such a scenario?

    • A This article was written a long long time ago, and we now have the advantage of real hindsight regarding suggestions you heard here… many are still being touted, but YOU can do-the-math on how you would have ‘fared’ had you followed the advice…and thus also decide if you should follow that advice starting now… “…to try over and over to do things in a way that has always failed and yet, expect a different outcome is NOT “optimism” …it is INSANITY!

      You must analyse what your problem is, realistically…and then analyse what the ramifications should be from strategies you can choose right now. Is your current loan a problem for you? …other than you’d wish it were smaller principle? ..What is your home worth to YOU! ..if you’d rather get out from under the obligation; pursue a deed-in-lieu or try for a short sale… foreclosure is a last resort, as is bankrupcy BUT, if you like your home, perhaps another re-fi would be the answer at todays very very low rates (perhaps a 15 yr note or ARM …that way you continue to ‘invest’ your cash into your own home (not a bad idea versus other investments today) …even if you have to pay down some principle to do that (glad you have cash to make that an option!)
      one thing for sure; you can do nothing to change the markets ‘perception’ of what your home is worth… but remember there is no one who can tell you what your home is actually ‘worth’ …that is exactly why we must have both a willing buyer and a willing seller (…if you think your home is worth more to you; ‘THEY ” can’t make you sell it for less…
      no tax deductions on any losses in those scenarios, …sorry. But there is a danger of “deficiency judgements” if you walk away using the wrong strategies, so do your homework and make the best decisions FOR YOU!

      • Thank you for the quick reply. To be clear I am not thinking of walking away at all. I think we did a great job remodeling (new windows, new roof, full kitchen and two bathrooms which may have added 20000 to the value, according to a real estate agent who looked at it. The 169000 is what zillo.com lists) I just want to get the monthly payment down as I enter retirement. And I am trying to figure how hard I am going to get hit around costs, such as taxes, points, etc. by taking this action. Again thank you.

        • Airean
          You should think about ‘financing’ as much as you can through use of your own available funds; via solo401k or “helping’ a friend or relatives retirement funds (which might be producing 1%now being replaced with a 5% return from your note (“private financing”!!) with much much less costs, closing etc. …producing more tax deducts for YOU too! …think outside the box and do the math yourself… your friends will love ya for it …banks will steal your cash, only borrow as much as you can get at 3% from them…. check out Schwab Mortgages too… or even a HELOC that can be based on a much more realistic appraisal of “worth” than anything you will see on ZILLOW… they are a completely bogus site for any real info… self serving drivel to promote bank-owned garbage and recruit a new generation of economic slaves… You can outsmart these bankrupt idiots, keep learning and using these great techniques, enjoy your home , it sounds great and only YOU can set the value of YOUR home…buyers must bid that or walk!

  36. love ya bill lol!! im just a nother rat in the trap

  37. Wendy
    Please don’t stay trapped, ..or feeling trapped ….Getting out of almost any situation is just a matter of getting a new view of your real ‘options’ as they apply to your specific circumstances… once free from all the negative propaganda, you can start to use some real growth strategies and never let others control your financial fate again… please investigate further, …control your own future It’s not rocket science, just a tad “counter-intuitive” to newbies