Five Ways to Cope with Upside Down Mortgages

Posted by  on Apr 17, 2009

In many parts of the United States, declining property values have created dilemmas for homeowners. For the first time in generations, Americans are experiencing "upside down" mortgages. Some homeowners have already been forced to walk away from their toxic loans, even though they remain liable for the difference between their home's original value and its current selling price. For Americans who are upside down on their loans, financial planners offer five potential plans of action.

If You Can Afford Your Payments, Consider Doing Nothing
As long as you can continue to make your monthly mortgage payments, your original contract will remain valid. Historically, real estate values rise over the long term, meaning that you'll eventually recover. In the meantime, put off any plans to move or sell your property.

Seek Help from Your Mortgage Lender
If you have experienced a loss of income or if you fear that you may lose your job, start talking to your mortgage lender right away. Many foreclosures could have been avoided by communicating more effectively. In general, lenders rarely want to foreclose on a home. Instead, many lenders offer forbearance and modifications designed to help you through rough times.

Apply for Government Assistance
Thanks to government stimulus and bailout funds, more lenders consider requests for mortgage modifications. Government sponsored programs, administered through HUD, FHA, and other agencies, reward banks that adjust mortgages to match current appraised values. Because these programs may require months of planning, partnering with your lender at the first sign of trouble can help keep you in your home.

Request a Deed in Lieu of Foreclosure
Deeds in lieu of foreclosure involve you giving up the property and being released from your loan obligation. They are voluntary and take place outside the judicial system, which costs a lot less than foreclosure. That also means there is room for negotiation. Ideally you would have a real estate attorney represent you in the transaction.What you want is a complete walk-away and a "paid-satisfactory" or at least "paid-settlement" on your credit report. The lender's reps may state that they can't do this but in fact they can.

Declare Bankruptcy
Bankruptcy should be undertaken with professional help. You may be able to afford your home if you offload other obligations like credit card debt or expensive toys.And even if you have to give up your home, bankruptcy can get you relieved of deficiencies (the difference between what you owe and what your property brings in a foreclosure sale) that might come up as well.

Before embarking on any of these five courses of action, seek advice from a qualified financial planner or non-profit debt counselor. The financial decisions you make during today's tough economy can set the state for fiscal well-being in the decades to come.

Joe Taylor Jr.

Joe Taylor Jr. is an internal business consultant for a Fortune 500 company, who writes about finance, culture, and design. He holds a Bachelor of Science in Communications from Ithaca College.

Abigail Curtis • Foreclosure Dilemma • Feb 26, 2009 • http://bangornews.comhttp://www.bangornews.com/detail/100416.html • Bangor Daily News
Jed Graham • Loan Cramdown Program Could Be Scaled Back • Feb 26, 2009 • http://investors.comhttp://www.investors.com/editorial/IBDArticles.asp?artsec=16&issue=20090226 • Investors Business Daily
Felix Salmon • The Truth About Mortgages • Feb 25, 2009 • http://portfolio.comhttp://www.portfolio.com/views/blogs/market-movers/2009/02/25/the-truth-about-mortgages • Conde Nast Portfolio
Richard K. Green • Why not just reduce borrowers debt? • Feb 26, 2009 • http://www.latimes.comhttp://www.latimes.com/business/investing/la-oew-green-thornberg26-2009feb26,0,1563850.story • Los Angeles Times


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