, June 20, 2011 11:01 am
There’s a new report issued recently about the number of Massachusetts homeowners whose properties are “underwater”…they owe their lenders more than their home is worth. It’s a very tough spot to be in, particularly if you want or need to sell your home. CoreLogic, the firm that issued the analysis, says there are more than 230,000 homeowners (15.4%) in this situation. What can you do?
Hang in there. If you can still afford to make the payments and it’s still a decent place to hang your hat, then you may have to sit tight. Although it’s hard to imagine that real estate values will ever return to something more “normal”, it is bound to happen. Don’t forget that we had the worst recession of our (and our parents) lifetime. Also, as you continue to pay down the mortgage, you will reach a point where the mortgage balance is lower than the value. It’s just going to take some time
If you have to sell, see if your bank will do a short sale. That means your lender will forgive the difference between what you owe and what you can sell it for. Depending on your lender, you may be expected to pay back some or all of that difference in the form of an unsecured loan. If your lender forgives the difference, that amount will probably be taxable
Rent. You can rent out your home, if you come close to breaking even every month. That, of course, means that you’ll have to rent, also. It’ll depend on how long you’ve owned the house and what rents go for in your neighborhood
Renegotiate your mortgage. I’m less optimistic about this approach, given how much stricter lenders are these days. But you won’t know until you ask. So, ask
Bankruptcy. I always hate this option…it has such negative long-term effects on your credit rating. Check with a lawyer first
Just walk away. In my opinion, this is never a good option. It messes up your credit and eliminates an important and probably your largest asset. This is absolutely the last resort
More than 10.5 million US homeowners were underwater by the end of the first quarter, down slightly from the last quarter of 2010. Losing a job or a major health issue often puts people right over the edge and on the road to foreclosure. No matter which approach you take, you’ve got to crunch numbers, talk to a lot of people, and try to do the best thing now and for the future. All the best. Until next time, here’s to good planning!