Upside Down on my House

[questions]

I'm not sure what to do and would like your help. This is what has happened.

I own a house that is upside down by about $90k. I have an interest-only 3-year ARM which adjusts in January 2010. My original plan was to refinance when the ARM came due, but that seems unlikely now since the property is worth less than the loan. Please don't lecture me on this - I know I made a huge mistake and I'm trying to do what I can to solve the situation. I'm pretty much treading water and if I have to pay a higher payment, I think that will send me into a cycle from which I can't recover. I just don't have enough money coming in to pay anything higher than I am now.

I have never been late on a mortgage payment or any other debts that I have. I have never taken cash-out from my home as a second mortgage or line of credit. The only reason I'm upside down with the mortgage is because of the declining housing market.

What I'd like to do is a short sale or a deed-in-lieu on the property, but I'm afraid my lender might not allow me to do this since I have never been late on any of my payments ever. Should I stop making payments to make it more likely I can do this?

I hate my situation and I know I need to do something now rather than later. I'd appreciate knowing any options I may have.

Thanks for your help...

[maat55]

I personally, would talk to my mortgage company and explain that I will not be able to make the payments when they adjust and see if they will do a refi to a fixed rate I could afford.

You have until 2010 to see if they will work with you. If you are forced, I would stop making payments and go with the short-sale/deed-in-lieu option.

Because many are going to be in this situation eventually, I would guess that there will be some sort of compromise offered.

What are the chances that you could afford the new paymant?

[arthurb999]

Have you called them yet? What did they say?

[rizzmo]

OP to be frank, you need to earn more money. You can do this by

1. Getting a second job.
2. Increasing your income in your present job
3. Get into a new primary job.

It sounds like you have a year to do this in. Good luck.

[disneysteve]

I own a house that is upside down by about $90k.

The only reason I'm upside down with the mortgage is because of the declining housing market

Not to lecture, but I suspect that the declining home value is not the only reason you are upside down. How large of a downpayment did you make when you purchased the home? Most folks who find themselves upside down are those who put down little to nothing. They had no reserve equity to cushion them from falling prices. If you bought a $500,000 home and put down 20%, or $100,000, your loan was for $400,000. If the home dropped in value by 20%, you'd be even. If, however, you only put down 3% and borrowed $485,000 and the value dropped 20%, you'd be upside down by $85,000.

What should you do? Boost your income and slash your spending as much as possible. Work extra hours, get a second job, sell everything that isn't nailed down and isn't absolutely needed, cut out unnecessary services like cable tv, cell phones, lawn care, etc.

I don't know much about short sales, so I can't comment there, but I'd be busting my rear to keep the house if I were in that situation.

[tripods68]

You still have plenty of time to work out your situation. Definitely try to improved your current financial situation whether if you need to work another job, or lower your household expenses. More importantly, you should contact your lender to work something out. With the bailout package, you would hope banks are more keen in working with you about restructuring your loan. But definitely do not try to sell your home now when your lender is willing to work with you. Call them up first.

[kenny911]

OP to be frank, you need to earn more money. You can do this by

1. Getting a second job.
2. Increasing your income in your present job
3. Get into a new primary job.

It sounds like you have a year to do this in. Good luck.

The best advice would be to walk away. There is no point in fighting a losing battle.

[disneysteve]

The best advice would be to walk away.

How is walking away a better option than taking responsibility for the decision you made and doing everything in your power to remedy the situation?

They were just talking about this on CNBC last night. Just stopping payments doesn't make it any more or less likely that the lender will alter the terms or accept a short sale. What you should do is call the lender and explain your situation. What they are willing and able to do for you depends on your situation. They are handling these things on a case by case basis. They will review your income, expenses, debt, etc. and make a determination. It may end up in a short sale or deed in lieu deal, but it could end differently, like with them refinancing you to a fixed rate that you can afford. All you accomplish by stopping payments is trashing your credit score.

[Inkstain82]

How is walking away a better option than taking responsibility for the decision you made and doing everything in your power to remedy the situation?

Depends on the situation. It's long been a principal of the Western world that no debt should take away a person's ability to live a simple, basic life and ply their trade. If trying to repay the debt will literally break him everywhere else in his life, then there's nothing wrong with walking away (and accepting all the consequences that go with it). The risk of him doing so was priced into the loan itself.

But the consequences are severe enough that he should really, really try to rectify the situation without walking away.

[snafu]

Can you get more income by having a room mate, sharing your home, or renting the basement? If you live near a college, students need accommodation.

We accepted an international student 'homestay' and it was a better experience for us than for him! We learned so much and had so much fun I would have done it for free!

[KatieNK]

Snafu, that sounds interesting! How did you get into that?

[arthurb999]

Seriously… I'd put an exchange student from Siberia in my garage

[kenny911]

How is walking away a better option than taking responsibility for the decision you made and doing everything in your power to remedy the situation?

They were just talking about this on CNBC last night. Just stopping payments doesn't make it any more or less likely that the lender will alter the terms or accept a short sale. What you should do is call the lender and explain your situation. What they are willing and able to do for you depends on your situation. They are handling these things on a case by case basis. They will review your income, expenses, debt, etc. and make a determination. It may end up in a short sale or deed in lieu deal, but it could end differently, like with them refinancing you to a fixed rate that you can afford. All you accomplish by stopping payments is trashing your credit score.

You can call the lender and explain your situation but I doubt they are going to knock 90k off of your principal. Taking responsibility is to look at yourself and determine if struggling to pay off something that is worth 90k less is worth it. The smart business decision is to leave the keys in the kitchen and get out with your sanitiy.

[disneysteve]

You can call the lender and explain your situation but I doubt they are going to knock 90k off of your principal.

Of course they won't, but what they might do is alter the terms of the existing mortgage. Maybe they'll delay the reset or make the interest adjustment smaller or extend the term or refi the remaining balance at an affordable fixed rate. There are lots of options available if they want to avoid foreclosure.

[Exile]

I know what you're going through, questions. For 16 years DW and I were upside down on our mortgage. The psychological burden alone was crushing. Finally, we were able to sell the place and come out a little bit ahead in the process.

There were several reasons that we hung on as long as we did. One was fear of a bad credit rating. Another was that if any portion of a loan is forgiven via short sale or other means, the IRS considers that amount as income and will tax you accordingly. Talk about kicking people when they're down. Worst of all, at the time another IRS rule was that you had to buy another home to replace the original within two years or be taxed on the proceeds of the sale. In other words, you were forced to become home buyers and take out a new mortgage all over again whether you wanted to or not, no matter how much of a hardship that might impose.

So here's another suggestion: Lease out your home for a higher monthly amount than your mortgage payment and move into a cheaper rental unit. This way you may still be able to save your credit rating and possibly eventually get some equity in your property. One reason that DW and I didn't go that route is because we didn't feel that we had what it takes to be landlords. But looking back, that may have been the best solution after all.