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Saturday, May 18, 2013

Upside down mortgage solutions

The housing bust has left so many homeowners frustrated and racking their brains for solutions, especially if they are upside down on their mortgage.  If you bought your home or refinanced during 2003 through 2007 your home may be worth less than you owe, or upside down.  The first and most important step is to understand your options. Depending on your situation, you may have several options that you should discuss with your lender, servicer, or housing counselor to decide which option is best for you and your family.

If you are behind or about to fall behind on your payments there are a couple of options you should consider. Catching up on missed payments through a repayment plan is the first and easiest option. You may qualify for an advance if your missed payments are due to a temporary hardship.  Best case scenario mortgage loan terms can be changed to make payments more affordable or what is called a loan modification.

If you choose a loan modification, read the fine print and make an educated decision.  Most modifications will not lower the principal amount of the loan but will allow you to change interest rates to lower the payment.  In doing so you acknowledge the full amount of debt regardless of the value and waive rights to fraudulent or predatory lending claims in the future.  You also turn your loan into a full recourse load which could follow you for the rest of your life even if you choose foreclosure down the road.

The most drastic option to get out of an upside down mortgage is a voluntary foreclosure or a short sale.

With the first option, voluntary foreclosure, the bank will take the home back.  The second, a short sale, is when the bank or lender accepts a price lower than the loan amount as full payment on the loan.  Either of these should be your last resort as they will both negatively affect your credit score may prevent you from home buying in the future.

A growing trend according to The Washington Post is cash-in mortgage refinancing.  Homeowners who want to keep their homes and refinance at lower interest rates agree to pay in cash to lower the loan amount. This is an option about 33 percent of all homeowners chose in 2010.

The last and perhaps the most feasible option, although the most expensive, for homeowners who are upside down on their mortgage is to suck it up and continue to make payments.  Since your house still serves as shelter and you can still afford it, continue to live in your space regardless of how much you owe.  The bottom line is that you are investing a large amount of capital into something that may never give a good return but if you continue to make payments eventually you will own your home outright.

It is important to consider all your options and speak with a financial advisor and a lawyer before making a decision . Be completely forthcoming and discuss any government or other assistance programs for which you may qualify. 
This post was written for Gary L Waters, PLLC by Stephen K HacheyStephen is an Orlando real estate lawyer specializing in loan modifications, short sales, foreclosure and much more.

He is also the owner of his own practice, the Law Offices of Stephen Hachey, PA.  This article is for general informational purposes only and does not establish an attorney-client relationship. Please contact a licensed attorney in your state of residence. For more information on our services, please visit our website at


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