Mortgage Tips

When Your Home's Value is Less Than the Mortgage

For a variety of reasons, it is possible that the total debt on your home may be more than what
the home is worth. Most of the time, this isn't a problem because time is the solution.
Depending on how much you owe, just wait it out and the value of your home goes up.

Problem solved. Unfortunately, this could take years.

This solution does not work for everyone though, because some folks are stuck in a situation
where they absolutely have to sell their house.

This can happen for many reasons, some good and some not so good: relocation, financial
hardship, divorce, death, illness, or anything at all. The result is that you may have to move, but
you can't sell your house and make enough on the sale to pay the closing costs.

So what do you do?

One option is to do nothing and not make your mortgage payment. That's a worst-case
scenario because it impacts your credit rating more severely than anything else possibly can.

Another option is something called a "short sale." This is when you fess up to the lender,
let them know about your hardship and ask them to accept less money than you owe.

Of course, the lender doesn't want to do that, but they also don't want to pay all the costs
of foreclosing on a home, repairing any defects, placing it on the market, and getting the
best price they can in what may be a market already overstressed with excess inventory.

Lenders absolutely hate to foreclose, so they may be willing to consider a short sale.

Not always so don't get your hopes up.

A short sale involves a lot of paperwork, time and effort and it is best if you have a real
estate agent or someone knowledgeable to help guide you through the process and
give moral support. A lot of stress is involved.

The first step is to contact the Loan Service Department of your lender. That number will
be in the documentation you receive about making your payment. Use the phone and the
mail. Keep copies.

The lender will ask you to submit a financial statement. They want to know that you really
don't have the financial assets to repay the loan after you sell the home.

That's just the beginning, assuming they give a tentative agreement.