I Owe More On My Mortgage Than It’s Worth. What Can I Do?
There is no one-size-fits-all solution when it comes to upside down residential real estate. What works for one person might not make sense for another. The underlying financing involved, the nature of the property, and the objectives of the homeowner all play a big role in what the best solution is.
The baseline option that people ought to consider in deciding what to do with their distressed real estate is a foreclosure. The foreclosure generally takes 7 to 8 months from the first missed payment to loss of ownership of the property. Sometimes it can be longer, but that is typically what you should expect if you are going to stop making your mortgage payment. Generally, not making your mortgage payment is necessary to motivate the lender to work with you on the loan. There are some cases where you can get a loan modification or work out some other solution without missing a payment, but that is an exception rather than the rule. If nothing else does work out and foreclosure is in the works, it is important to understand what is going to happen after the foreclosure in terms of deficiency liability, credit, tax issues, and other timing issues that the homeowner has.
Another option is a short sale. A short sale is a type of negotiation with the lender in terms of getting the house sold for less than what is owed. A short sale involves getting a real estate agent involved or someone to make an offer on the home in order to sell it for less than what is owed. An important thing to remember with a short sale is to make sure you get a clean short sale approval and not a dirty short sale approval.
A deed in lieu of foreclosure is another alternative. It is just what it sounds like. It is deeding the property back to the lender instead of having to go through the foreclosure process. Sometimes the lenders are interested in that and sometimes they are not. Deed in lieu of foreclosure could make sense for the borrowers especially if credit is extremely important to them. Typically, it is not their best option because it means parting ways with the property before it is absolutely necessary.
Loan modification is one other alternative to foreclosure. It rarely presents a great option for the borrower but it could have some benefits to consider as part of the overall strategy.
There are lots of issues to consider and questions to ask when deciding what to do with distressed real estate. There are insurance issues to consider and perhaps rental income that is important to look at for the homeowners. Also, homeowners need to look into the timing of when they move and how that will affect them. It is quite possible that the homeowners could qualify for another home loan before they do anything to affect the distressed real estate and that could make sense as well. These are all options to explore when deciding what to do with distressed real estate.
The bottom line is that if you are going to be parting ways with your distressed real estate, there is foreclosure and then there are the alternatives to foreclosure including short sale, deed in lieu of foreclosure, and loan modification. One or some combination of those options will probably make sense for any given homeowner that needs to get out from under distressed real estate.
Contact the Arizona real estate professionals at Gunderson, Denton & Peterson, P.C. today!
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Mesa, Arizona 85213
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