Upside Down Mortgage

Underwater Mortgage What To Do

Question: how do I walk away from my mortgage without owing any of the balance my house is about 125% underwater?

Answer: First of all, it doesn't matter if you are 'underwater' unless you need to sell.

People are 'upside-down' all the time on car loans and it doesn't freak them out.

The bank never agreed to be your financial partner and assume risk with you. The bank agreed to lend you money and you agreed that you would repay it. If you are able to do so, you should. If the property was worth 125% of what you paid for it (i.e. a 25% profit) would you be looking to share that with the bank? Why do you think they should take YOUR loss?

You can't walk away with no penalty. That's because you borrowed the money and YOU agreed to pay it back. When you don't pay it back, it shows you are irresponsible with money and not a good credit risk.

There are four levels of things you can do if you have to sell. The further down the list you get, the more damage it does to your credit.

#1 - come up with the difference out of pocket at closing. Not terribly attractive, but does no damage to your credit.

#2 - get the bank to agree to a 'short sale'. From a bank's point of view a short sale is a loss mitigation technique - meaning they think they'll lose more if they don't do this. This is why they have means testing for a short sale and why you already have to be delinquent in payments.

#3 - deed-in-lieu of foreclosure. A 'voluntary' foreclosure. Saves the bank attorney fees and a court date. Trashes your credit.

#4 - full foreclosure. The bank hires and attorney and goes to court to gain ownership.

In cases 2, 3 and 4 there is a deficiency. They can come after you for the balance. In some states it is difficult for them to do so and they may choose to forgive the balance. If they do, they will almost certainly send you a 1099 next tax season where the amount forgiven counts as income to you (and now you have a real tax problem).

There is no 'walking away'

good luck!

'Under Water' Mortgages

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