How to Deal With an Upside Down Mortgage

By Sonia C Llesol

If you are presently experiencing an upside down in your mortgage, there may still be hope to solve this problem. Nevertheless, your option requires a great deal of sacrifice but necessary to avoid greater financial losses.

More or less, 20 percent of all mortgages in the country have negative equity. If home prices continue to plunge, the number could increase to 25 percent or 30 percent. With the continuous job loss, it becomes more difficult for homeowner to meet their mortgages and difficult still to justify paying for homes that have a harsh negative equity.

Most people with upside down mortgages tend to give up, mail the home keys to the bank and start anew in a different place. Nevertheless, help could be on the way through a loan modification program, which aims those with upside down mortgages. Consult your lawyer for further details on this.

The firs thing that you should do is seek legal advice ahead of time. Situations and rules vary in every state. In particular, the option of walking away from a mortgage is not available in each state. You could suffer tax consequences, so make sure to consult your attorney to help save thousands of money.

Cutting back on your living expenses could help to continue living in the house and making the mortgage payments. Consider renting out the house to cover ownership costs and move into a cheaper place.

Renegotiating the mortgage with the lender is another option to consider. If the lender agrees to this, much of your mortgage terms could be negotiated, such as the rate of interest, number of payments and the balance due. Having a short sale should be negotiated with the lender. Find out if they are willing to accept a lesser amount that what you owe them.

For this, you really have to consult your lawyer since even if the bank forgives a loan, the IRS could evaluate the amount as taxable income. In some areas, mortgages are usually made on recourse basis, meaning that the bank could take the deed of the home but could not run after you for any balance due. However, check with your lawyer because this is not true everywhere. A better option than walking away is a deed-in-lieu where the bank agrees to take the deed and forgives the balance of the mortgage.

Bankruptcy filing is another option, particularly if most of your assets go to your retirement plans. Once again, consult your lawyer because there are some things in bankruptcy that you get to keep but could vary from state to state. Making the right moves before filing for bankruptcy helps save you thousands of dollars. For instance, the tools you use for your business are normally protected; therefore, you do not want to sell them before filing for a bankruptcy.

Always remember that there are institutions in your area you can go to for help and could advice you on possible solutions. The most important thing is to be optimistic about it and remember that for every problem, there is always a solution.

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