Four Strategies for Dealing With an Underwater Mortgage
In recent years many of Americans have suffered as a result of the struggling economy, causing them to experience financial instability. Whether you have struggled to pay your bills – including your mortgage – because you were laid off from work or for some other reason, you are not unlike many people throughout Oklahoma and the United States. Many people who bought a home within the last 10 years did so expecting the value to go up, but unfortunately the opposite has happened. A recent report indicated that there are more than 11 million residential properties with a mortgage underwater (which means the owners owe more on their mortgage than the property is worth). This is a staggering number and sheds some light as to why we have seen a higher number of people than average file for bankruptcy.
Dealing with any kind of financial turmoil can be stressful and dramatically impact an individual’s quality of life. For the millions of homeowners that are faced with an underwater mortgage, it may seem as though there is no way out. However, there are more options than you may be aware of and, thankfully, bankruptcy attorneys are available to help you decide which path is right for you. Should you cut your losses and walk away? Should you keep making the payment and hope the market improves? Should you try for a loan modification? These are all options that will help you decide what the right move is for your particular situation.
While each of the options listed below will likely have a negative impact on your credit, in many instances this will be a reversible and worthwhile price to pay to get out from under a mortgage that you can no longer pay. Here is a look at a few strategies for dealing with an underwater mortgage:
Just Walk Away
Some states have laws called anti-deficiency statutes, which state that, in the event your home is surrendered, the lender cannot sue you to recover the difference between what you still owe and what the home actually sells for. These laws are complicated, especially in Oklahoma, which is where an attorney will come in handy. Depending on where you live and what the laws are for your jurisdiction, walking away from an underwater mortgage may be a viable option.
Look Into Loan Modification
Before filing bankruptcy or walking away from a mortgage, we recommend you look into loan modification. If you believe your home will be able to recover its value in a reasonable amount of time, but are having trouble making the payments currently, a loan modification may be the right move for you. Keep in mind that every loan modification is done on a case-by-case basis, so the results may vary. However, some outcomes include forgiveness of missed payments, moving payments to the end of the term, reduced interest rates, and sometimes even a reduction of principal.
In a nutshell, a short sale takes place when you sell your home for less than what you owe on it, and your lender agrees to forgive the difference. It is important to note that this is different from what some realtors and lenders call a short sale – a transaction in which your home is sold for less than what is owed. This is an important distinction and another reason why you should consult an attorney to discuss your options when you cannot pay your mortgage.
There are two different kinds of bankruptcy that may prove to be the right option for you when faced with an underwater mortgage: Chapter 13 and Chapter 7. Chapter 13 bankruptcy allows you to keep your home while reducing the amount you owe on it. Filing Chapter 13 bankruptcy will also stop a foreclosure. This is a great option for those looking for some breathing room that will allow them to catch up with their payments over a period of three to five years. Chapter 7 bankruptcy, on the other hand, is in place to give you a ‘fresh start’, in that it provides a clean slate and a complete discharge of any and all debts you may have.
Our attorneys are here to help you figure out the best path for you, whatever that may be.