What do you do when your home is worth less then what you owe?

Mortgage owed, $390,000, home worth approximately $250,000. We applied for a loan modification due to some personal issues that caused us to start going under. We applied for a loan modification and was only approve for a $567.08 deduction from a $3441.36. This was not even a drop in the pocket. Stil paying almost $3000.00 ($2874.28) a month is still alot. Never missed a payment and never late in the 17 years of this mortgage until Bank of America told us not to pay 2 months mortgage in order to qualify for loan modificatioin. We did that and with just $500 plus dollars deducttion and on top of tha bad credit caused by the 2 missed mortgage payments. We are back in the same boat.

Asked on January 17, 2013 under Real Estate Law, New Jersey

Answers:

B.H.F., Member, Texas State Bar / FreeAdvice Contributing Attorney

Answered 7 years ago | Contributor

You have a couple of options depending on the extent of your financial situation.

One is to let a consumer law attorney review your paperwork regarding the loan modification you did.  It looks like someone gave you some ineffective advice to modify your loan.  A loan modification can be an effective tool-- but only if done with good information on the front end.  You may have some remedies considering that they had you damage your credit for minimal relief.  If you were mislead into this modification, you may be entitled to damages-- that would certainly help with the mortgage.

A second option is to visit with a bankruptcy attorney.  No one likes the idea of bankruptcy, but unfortunately, companies and congress have given many people no alternatives except bankruptcy.  There are different types of bankruptcy that would enable you to keep your house.  It could reduce other debt obligations, thereby making it easier for you to make the inflated mortgage payment.   I'm not trying to sell you on bankruptcy-- but you should look at it as at least an option to get your finances back on track.  It worked for Harley-Davidson and dozens of other companies that needed to shed debt in order to grow.  The same concepts can work for you.

A third option is to see if another company will refinance your note at a lower rate.  The mortgage balance won't go down, but you can at least accomplish more progress with a lower finance rate.  You may have to wait a bit for this option to come open considering that you just participated in a loan modification.  However, the good thing is that banks are competitive, and you could get a break during their little competitions for business.

You could consider foreclosure, but considering you're house is upside down, it may not help your situation.  If the house is resold for less than your mortgage, the company can still come after you for the balance-- which means you lose the house, but still have to pay the debt. 

Consumers have been struggling over the last several years with this same situation-- which I know is not directly a comfort--- but you should at least take some comfort in knowing that many people made it through.  Some used the ideas above.  Others simply found creative ways to increase their income -- like renting rooms out-- and just adapted to the increased need for income.  Keep in mind that there may also be more than one answer to your situation-- so talk to more than one consumer or bankruptcy attorney.  Most will give you at least one free consultation.  Go with the one that fits your needs, your values, and your comfort level.


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