What is a homeowner’s best option regarding a home that is underwater?

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What is a homeowner’s best option regarding a home that is underwater?

I have already contacted BOA, and they basically said they are unwilling to work with me on my loan. I also do not qualify for a short sale because I am gainfully employed and can make my payments. I owe $126K on a house worth about $80K max. Should we buy another house first and then let this one be foreclosed on? Or should we hire an attorney and try to get a principal reduction? Do you have any other ideas? If we are able to buy another house first, I do not really care about the consequences to my credit afterwards. I am more concerned about legal repercussions and fees. Can BOA get anything out of us?

Asked on June 28, 2011 under Real Estate Law, Florida

Answers:

SJZ, Member, New York Bar / FreeAdvice Contributing Attorney

Answered 10 years ago | Contributor

In terms of consequences for walking away from the mortgage, you could potentially be sued by the lender for the difference between what the home, after foreclosure, fetches at auction and the remaining balance of the mortgage. It's not a given they'd do this--often lenders do not--but in FL they have the right to pursue a "deficiency judgment." If you file for bankruptcy, you could give up the home and avoid a deficiency judgment

You are correct however, that if you want to buy a new home, you should do it before you have a default or foreclosure or bankruptcy on your record. A question, however: if you could afford to buy a new home, you should be able to afford the payments on this one. Even if the house is underwater, if you can afford to pay for it, you may wish to do this--you have a place to live and no negative hit to your credit; and in time, the market may come back, or you will also pay down the mortgage principal, and between the two, the house will emerge from being underwater.

You could hire an attorney to try to help you negotiate with a bank, but you don't need to--you can talk to the bank yourself, without paying attorney fees. It's one thing if you find a lawyer with a proven track record who's demonstrably good at doing this--that'd likely be worthwhile. But there's nothing inherent in being a lawyer to make them better at negotiating with the bank.

You could also try to rent the home and live elsewhere.


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