If we purchased a house 18 months ago but it need $30,000 in repairs which we can’t afford, what can we do?

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If we purchased a house 18 months ago but it need $30,000 in repairs which we can’t afford, what can we do?

Insurance will not cover the repairs nor will the builder and we cannot afford to make them. Due to the repair issues, selling will not get the mortgage amount from it. What options are available to get out of the home and mortgage payment? Would foreclosure be a good option?

Asked on January 25, 2016 under Real Estate Law, Colorado

Answers:

SJZ, Member, New York Bar / FreeAdvice Contributing Attorney

Answered 5 years ago | Contributor

There really are no good options:
1) If you fail to make payments and the home is foreclosed upon, if it is underwater (worth less than the loan), the lender can then go after you for the remaining balance (any amounts not paid off by foreclosing and selling/auctioning the house); this called seeking a "deficiency judgment."
2) You can seek lender approval to let you sell short and take the amount realized from the short sale as payment in full, but they don't have to let you do this--they can refuse and hold you liable for the full amount.
3) You can  most likely file for bankruptcy, which will lose the house but will probably get you out from under personally owing anything; on the other hand, it will strongly negatively affect your credit for at least 7 years to come. And also, bankruptcy affects all your debts and assets and can result in losing assets (assets being liquidated to pay creditors) if you file chapter 7, or in you having to live under a strict, court-ordered plan or budger for years to come, if you file chapter 13.
4) You can see if the lender will agree to accept the house from you as payment in full of the debt, but if it's worth less than the loan, they are unlikely to do so. 


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