What are my options if I have mortgages on 2 separate properties but cannot afford the mortgage on one of them?

I will be retiring in 2 years and will not be able to afford one of my house payments; the house is upside down and even if I rent it out I will not be able to make the complete mortgage payment.

Asked on September 11, 2014 under Real Estate Law, California

Answers:

SJZ, Member, New York Bar / FreeAdvice Contributing Attorney

Answered 6 years ago | Contributor

If you don't pay the mortgage, you may lose the house--the lender would have the right to foreclose. You would also have a foreclosure on your record, and may possibly be sued for any unpaid balance of the loan, if by selling the house after foreclosure, the lender cannot pay the full remaining balance.

You can see if the lender will voluntarily accept the property back as full satisfaction of the loan, but this is voluntary on their part: since lenders want money, not property they may have difficulty selling, they are unlikely to do this.

You could try to short sell the property and accept that you'll then have to go out of pocket for the difference between the sale proceeds and loan balance; this will at least get you out. Or maybe rent, even if it doesn't cover the full mortgage payment, and accept you'll lose some money each month while waiting for the market to improve.

If the other property is above water on the mortgage, you could sell that one and live in the below-water one; that way, you'll realize some profit on the one you sell, and can treat what you're paying to live in the under water property as "rent" (which it basically is).

If one is an investment property, you *may* be able to get the balance on its loan lowered to actual current market value by filing a Ch. 13 bankruptcy--this can be complex, so you are advised to consult with a bankruptcy attorney before doing this. However, filing bankruptcy has a significant negative effect on your credit, so this is not something to do lightly--and even if the value of the loan is "crammed down" to market value, depending on what that is, it may not help you enough and you might still not be able to afford the home.


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