What is the best financial choice regarding a home that is underwater?

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What is the best financial choice regarding a home that is underwater?

Currently, we owe $199,000 on our home that has now depreciated to $154,000. Our mortgage company says we do not qualify for any modifications on our 2 home loans. For now, we are able to make our payments, but is it wise to continue to do this? We are spending over 1/2 of our net income on house payments. We are 50 and 56. Should we just hang in there until we are ready to return to apartment living and then let the bank foreclose or do a short sale?

Asked on February 27, 2011 under Real Estate Law, Minnesota

Answers:

M.T.G., Member, New York Bar / FreeAdvice Contributing Attorney

Answered 10 years ago | Contributor

There are options to foreclosure and if you do not care about keeping the house then I think that you should seek help from an attorney to negotiate something to your benefit.  There is the option of a short sale, meaning that you would sell the house for less than the mortgages are worth.  The mortgage company needs to give approvalfor this.  The key here is that the mortgage holders - whom I am assuming are the same for both mortgages - WAIVE THE DEFICIENCY.  There will be a deficiency if you sell the house for less than the mortgages, or in other words, you will owe them money.  They can waive this. Another option is to negotiate a Deed in Lieu of Foreclosure, which means that you basically sign the house over to the mortgage company to save them - and you - from the expensive and lengthy foreclosure process.  Again, they need to waive the deficiency.  Good luck.


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