Denver Real Estate ~ Upside Down Mortgage

Homeowners who need to sell their property right now are finding they owe more than the home is worth. This is a tough problem to face. How can it happen?

There are several reasons why the mortgage on a home exceeds its value:

Real estate values in the neighborhood have declined, due to an over abundance of homes on the market or a glut of foreclosures.
The home owner has refinanced taking out a larger mortgage than the value of the home can support and/or incorporated closing fees into the mortgage, thus increasing the mortgage amount.
Late fees and back payments have been added onto the mortgage and are also accumulating interest charges.
A negative amortization mortgage was taken out on the home.
Lack of maintenance

Homeowners who find themselves in a situation where values in the neighborhood are dropping, but they don’t have to sell their home really have nothing to worry about. Since most people plan to live in a home for many years, the market will rebound and values will increase. Sit tight and tune out all the negative press. Make your payments, enjoy life and when it comes time to sell you will be fine and probably save yourself a few gray hairs in the long run.

If you are a homeowner that MUST sell your home and are up-side-down with your mortgage vs. home value, you do have some choices.

In a declining market you can price your home to sell and make up the difference with cash from your pocket at closing. Many homeowners do not like doing this, but will just to be able to move on to their next home. If the homeowner is lacking the cash, it might be possible to get a cash advance on a credit card or from relatives to complete the transaction.
Rent the home out until the market improves. Sometimes this means only a couple years of renting until things look better.
In the case of a home that has not been cared for, fixing the home might bring it up to acceptable standards to sell.
Request the mortgage company holding the mortgage restructure your mortgage so you can sell. The balance of what is owned can be transferred into another note which you can make payments on until paid off. The mortgage company may or may not be able to do this depending on what type of lending institution they are. Of course the better the borrowers credit score the better the chances are of negotiating this type of deal.
Short sale ~ ask the mortgage company to accept less than what is owed and write off the balance. This is a lengthy, not guaranteed process that could take up to 6 months. If the bank is willing to cooperate in a short sale, the amount of mortgage that was relieved could be subject to income tax. (please check CPA for details) Short sales have a negative impact on credit ratings.
Some employers (as in the case of a transferee) might agree to absorb the amount short in order to get the employee settled in the new location.
Deed in Lieu of Foreclosure ~ if there is absolutely no way to get the home sold and there are no funds, renters or family to help, giving the home back to the bank is an option. The best way to do that is to start a conversation with the mortgage holder to see how they would like to go about it.

There is really no “one size fits all” solution. Usually there is a way to salvage a situation if one tries. Homeowners in trouble have become the focus of many agencies, with the government looking for ways to help.

If you are a homeowner who is up-side-down and you need to get out of your home, don’t hesitate to call and ask for help. Start with your mortgage holder. If I can assist you in the Denver metro area, please feel free to call.