How to avoid going underwater on a mortgage |
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Sell the boat
When he says cut back, he means paring to the bone. Don't stop at eliminating restaurant meals and unsubscribing from premium cable. "Do you really need two cars? Do you have a boat? Really make tough decisions in order to stay current on the loan."
If that's not enough, talk to the loan servicer as soon as you can. "Let them know all that you have done to stay current on the loan," Svinth says. "That gives you, as the borrower, a great deal of leverage."
If you aren't yet 30 days late in making a house payment,
but you're worried that you soon will be, don't let the customer
service rep brush you off by telling you that no help is available
until your payment is a month overdue. Say, "Please escalate
this call and let me speak to a supervisor." Once your payment
is 30 or 60 days past due, your options shrink.
Sell the house
Depending on your situation and whether the originating lender sold the loan, the servicer might give you a break on the mortgage payments in exchange for putting the home on the market immediately.
"If someone is starting to feel they're starting to get underwater or are getting concerned, now is the time to sell," Garfinkel says. "I'm not saying they're going to make a boatload, but they can get out."
Hayes advises hiring a real estate agent, discounting
the price and selling the house as fast as possible. Naturally,
as head of HomeVestors, he suggests calling his company. "We
provide solutions to ugly real estate situations, and we're often
able to help people."
Garfinkel cautions against acting out of desperation. "First and foremost," the lawyer says, "you've got to be careful of scams. There are companies out there that will prey on homeowners who are starting to experience some backlog in payments." He suggests talking to a trusted adviser such as a lawyer or an accountant -- someone who has a legal duty to provide advice in your best interests. A mortgage lender doesn't have such a fiduciary duty.
Short sales make a comeback
There is a type of sale called a "short sale," in which the house is sold for less than the mortgage balance, and the difference is either forgiven or paid off over time. You can't do a short sale without the cooperation of the lender. If you can afford to -- and you probably can't afford not to -- hire an attorney to negotiate the details of a short sale with the lender.
Because of rapid price appreciation, Garfinkel hasn't handled a short sale in years. Now that prices are falling in some markets, especially on the coasts, short sales might make a comeback.
A short sale can be painful, but it's not as bad as a foreclosure, when the borrower is evicted from the house and it is sold, often at auction.
In many cases, a foreclosure can be traced to a lack
of communication between the borrower and lender.
Hayes says his company often hears from people after the foreclosure process has begun, when it's too late to avert an auction. "When we say to them, 'Why didn't you call your lender or respond to phone calls?,' they say, 'They just want to take my house from me,'" Hayes says. "That's not true. They don't want to take your house."
No one wants to sell a house that's underwater.
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