What can one do when they owe more on the house than it's worth?

[Maine-ah]

Serious answers here. I have a friend in need, who is currently getting screwed by BOA, and the local banks won't touch it because of her flip/flop situation.

[DCBob]

1. Do they need to sell now?.. if not, dont worry about it..

Current value means nothing if they arent selling.

[Maine-ah]

3. they don't want to sell it

they want out of BOA. But I'm thinking their screwed and are stuck with them at least until the housing market changes. We're not talking anything extravagant either. They bought the apartment house they had been living in for years. It's an old Victorian. First home purchase, not a freddy/fannie purchase or under any other FTHB program either.

[DCBob]

11. I see.. that may be difficult to re-fi under the current situation..

But they should keep trying.. there may be a way. Good luck.

[DrDan]

2. how is BOA screwing them?

[Maine-ah]

5. they want to re-fi

for a lower interest rate, and the woman at BOA brought my friend down to tears, I still don't have the full story, she just wants out of BOA.

[DrDan]

30. there is no reason at all to treat customers that way - to bring them to tears

but without knowing details, isn't it hard to know if BOA is screwing them or not?

They certainly will ask for a downpayment or equity based on the current value. And many factors determine an interest rate.

[pipoman]

4. Did your friend buy the house? Agree to the sales cost?

Go to the closing? Sign the contracts?

I bought a car a few years ago which 2 months later was worth 2/3 the price I paid.

I certainly am empathetic toward those who have lost their jobs and can no longer afford the house they are in, but for those who are simply in a position of non-equity because of market fluctuation, welcome to the wonderful world of investments.

What your friend can do is either suffer the credit consequences of walking away or filing bankruptcy, or suck it up, keep paying the mortgage and hope there is a market recovery which has a positive effect on the value of the property.

[Maine-ah]

7. unfortunately I think that's what she is going to have to do as well.

it's not a job loss, but the girl is working 2-3 jobs. Her husband has a job as well.

[pipoman]

13. Someone down thread suggested

doing some work to the house. Often some work with minimal monetary investment can result in great increases in value. I didn't mean to come off as mean in my first post, just that virtually everyone who purchased a home in the US in the last 5 years or so are in a position of lowered or no equity because of the 'bubble burst'. The only way out is for market conditions to improve. Some will never realize their losses, others will make their losses back plus.

[Donnachaidh]

14. wow -- another example of the typical *f*ck you, I've got mine* attitude

Wasn't the whole hoopla about Obama's plan supposedly helping people underwater?

So it's *okay* for the devastation to continue, because *they* have to live with the consequences of a corporate driven housing bubble?:wow:

[Maine-ah]

20. the problem with Obama's plan is that

it only helped those who had mortgages backed by fannie/freddie. These are hard working people, who really did buy responsibly, the house really wasn't that much. Hell, I'm betting with my house that if I sold it now, I'd just about break even. I purchased in 2002, for 85k. At the height of the housing market, my house was "worth" 140k.

[pipoman]

27. Maine answered this well...

Just so you know, nearly every single person/family who owns real estate in the US experienced a loss at the collapse of this bubble. Does it really matter if the real estate was purchased 1 day before the collapse or 50 years before? People still lost large sums of money. Certainly you wouldn't suggest everyone be compensated for the losses they experienced almost overnight? I personally lost $60k+ overnight.

[Saturday]

6. This is not a suggestion, just telling what someone did.

They let the bank take their $100,000 house that was under water and bought the identical house next door from another bank for $15,000. What a world we live in.

[Clovis Sangrail]

8. keep paying the mortagage until that's not true?

invest some sweat equity into the house to bring the value above what they owe?

they haven't lost any money until they sell.

[trumad]

9. Tell them to do what corporate America does and walk away...

Hey---it's a bad business decision to throw money down a toilet.

[eilen]

10. They can continue to pay or walk away

I don't have judgement on it. Their choice. They may ruin their credit for about 5 years before they can get another loan. I see empty box stores all over the place where corporations pulled out when it was no longer profitable. The banks are quick to quit on people.

If they want to stay, they can rent out rooms. There are plenty that can't afford their homes, walked away and need a place to stay. The extra money can help pay the mortgage.

Cohousing
http://www.cohousing.org/what_is_cohousing

[Motown_Johnny]

12. if she knows someone with some money willing to help her......

...she can look into short selling the house to her investor friend who could then sell it back to her (on a land contract presumably).



The way this works, as I understand it, is that the bank agrees to take less for the house than the mortgage is because they get paid off in full right away. They also avoid the possibility of needing to foreclose on a bad loan. Also they have already been collecting payments from your friend since she closed on the house. Odds are the bank is still making money, just not as much as they would have if she continued to pay off the loan. (and they were leveraging the money at 30-1 to begin with anyways)


The Realtor handling the sale gets paid up front from your friend. I have heard the number $1,500.00 but it may not be accurate and also could vary depending on your location. The price of the house is then set fairly high and is then dropped periodical. It is a "reverse auction" where the first bidder is automatically the highest bidder. Your friend's investor will need to be the first bidder for this to work so they won't get as great a deal on the house as they might if she let the house go and went to a different property.

Once the investor buys the house it is up to him/her and your friend to make good on whatever agreement they have on her buying the house back.

I hope this helps. Good luck to her, and to you.

[Jane Eyre]

15. Staying could be an option

I bought a condo in a Boston suburb in 1987 for $157,000. Real estate in Boston had been increasing by as much as 25% a year for several years prior to 1987, then the bottom fell out of the local economy because the high cost of living (and hiring) and very high employment rates caused companies to look elsewhere. When I sold three years later due to a company relocation, the condo was worth $30,000 less than when I bought it. Fortunately for me, my company made up the loss as part of my relocation package. That also meant that I could sell at an even lower price than I might have been able to afford otherwise since the best that I could do was to break even. Of course, that in turn had a downward effect on sales comps and further depressed neighborhood prices.

Fast forward 23 years - I recently checked sales prices in my old neighborhood. My old condo is now priced at over $400K on Zillow! Had I been in a position to stay there that long, my temporary loss would have been more than made up and my original investment would have nearly tripled.

She doesn't lose unless or until she sells. No one knows which way the real estate market will move over time, however long term homeowners generally will see appreciation over a long period of time. As for refinancing, try checking out www.bankrate.com for possibilities.

[Skinner]

16. She can walk away.

I know the idea is offensive to many people. But she should think of her house/mortgage as an economic issue, not a moral issue. The mortgage has a mechanism built in for exactly this situation -- in fact, it is part of the contract: if the homeowner walks, the bank gets the house.

Believe me, if the roles were reversed, the bank would not feel constrained by any feeling of moral obligation. They would do what is best for their bottom line, which is to walk away.

[dkf]

17. Walking away doesn't always discharge you of debt.

If a person has assets my understanding is that under certain situations you can still be obligated.

Even Fannie and Freddie are setting up procedures to recoup money from people who walk away: "Fannie Mae will also take legal action to recoup the outstanding mortgage debt from borrowers who strategically default on their loans in jurisdictions that allow for deficiency judgments. In an announcement next month, the company will be instructing its servicers to monitor delinquent loans facing foreclosure and put forth recommendations for cases that warrant the pursuit of deficiency judgments."

http://latimesblogs.latimes.com/money_co/2010/06/fannie-mae-mortgage-walkaway-strategic-default-penalty.html

[Skinner]

19. That complicates things.

I should have mentioned in my previous post: If anyone is considering walking away, they should talk to a lawyer first.

[TexasObserver]

21. They want you to think they'll come after you, but it's not likely.

Any time a person defaults on a home loan, there's a risk the lender will foreclose on the home and sue the homeowner/debtor for the deficiency upon the foreclosure sale of the home. Assuming the loan is a recourse loan, that is a possibility, but the lender has to believe they have some chance of getting paid on the deficiency. Otherwise, they're just throwing good money after bad money, and wasting more time and money, while exposing themselves to a counterclaim for various lending practices that were likely illegal or at least deceptive.

The refusal of a borrower to make payments coupled with a refusal to leave the premises is part of negotiation in today's world. By not making payments, the borrower actually improves his chances of getting a newer, better deal from the lender, who does not want to take the property in foreclosure. By running up the number of delinquent payments, a borrower makes himself or herself more likely to qualify for and get refinancing programs designed for such situations.

It's a long, long trip from the borrower stopping payments to a resolution, and ultimately, the borrower can offer to trade an easy exit from the property for a release of liability on the deficiency at the foreclosure sale, should there be one.

Bottom line is this: by stopping payments on the loan, by refusing to leave quietly, by taking aggressive actions toward the lender regarding material misrepresentations and other frauds the lender may have committed in making the loan, the borrower can greatly enhance their position for resolution. By sitting back and simply writing checks for amounts they can't afford, the borrower only delays the inevitable while keeping the lender happy a while longer.

It's a business decision, and the way to trade with big lenders is to make your file the one they don't want to deal with. As long as you will pay on an upside down loan, they'll gladly take your money and not try to help you refinance or restructure.

FYI: you can even negotiate with lenders NOT to provide any negative reporting to credit agencies, or to withdraw any such negative reporting, as part of a deal to peacefully and quickly vacate a home which may enter foreclosure proceedings. The borrower has to use what is available for negotiation, and that starts by stopping the flow of payments to the lender. Until the lender stops getting that monthly check, the don't really care about your financial plight. Stop paying, then they care.

[dkf]

22. My brothers friend who could afford his mortgage decided not to pay so they would consider

A modification. Now we have the strategic missed payment before the strategic default. It has definitely become a game that the savvy can take advantage of. And the richer and smarter you are the more likely you are to try it.

Oh the irony.

[TexasObserver]

23. One time, in band camp ....

So, your concern, once again, is for the lender who is allegedly not treated fairly by the borrower.

Good luck with that Sheriff of Nottingham approach, but I prefer the Robin Hood side of this argument.

Millions of people underwater on house loans, but you know someone who isn't really underwater, just taking advantage of the refinance opportunities. Your concern for Bank of America is noted. It takes courage to look at a bank that got billions in free money from the government to keep doing the same bad job it had been doing, and say "I feel your pain, Bank of America. Those borrowers are mean to you."

[dkf]

28. Actually my point was that there are some who take advantage of this

To better their situation and that makes all situations suspect. It also increases the chances that the lenders will have to check into individual situations to sort out who can pay and who can't.

I do feel for those whose situations changed so that they can no longer afford their mortgage. But being underwater isn't the reason the mortgage became unaffordable. During the '80s Hawaii had this same situation where the Japanese started buying houses here and caused a bubble that lasted a decade. Most people who bought houses were underwater. I knew people who had owned their places for over 10 years had put down 20% and were still underwater. But they all lasted through it and are now up after the most recent decade.

Short term assistance during unemployment should be the solution. But for those who never could afford it there is no solution.

[SunnySong]

18. If she doesn't need to sell (job relocation for example) then keep paying the mortgage...

Being upside down isn't the end of the world... As long as you don't have to move there is no reason to worry about such things. (That said we of course would all wish to have our assets increase in value if just foe piece of mind.)

[northernlights]

24. I had an underwater mortgage when the condo market crashed

thanks to st. ronnie changing the tax laws back in the mid-80s. I talked to two different lawyers, who told me my options were:

1. hand back the keys and blow my life savings on a trip around the world. (he didn't mention they might come after me for the difference, nor did he mention the hit to my credit rating.

2. hide my savings in a safety deposit box and declare bankruptcy. (he didn't mention that the first thing the gov would do is freeze my assets, look in that safe deposit box and send me to jail for fraud.)

I took the option nobody mentioned: I rode it out. Eventually the market came back and, while I didn't make a killing on the condo, I did live there low-cost for years and sold it at a small profit in 2003.

Seriously, sometimes that's all you can do. I tried to sell my house last year -- the F$*%&$#$%ing realtor (the not so hot bank-named one) kept it *off* the market all summer and then started calling and emailing me suggested we just cancel the contract. x(

I ended up running up and down the streets in the nearby town selling what little jewelry I had to keep food on the table, before I landed a job that paid enough to barely sortof hold things together and buy me more time. I re-listed late winter/early spring with another realtor, who has done jack squat and now the market is deader than a doornail. Nothing to do now but ride it out.

[SoCalDem]

25. They should sit tight unless they absolutely HAVE to move

we have been "upside down" many times over the long life of our mortgage on this old house we live in, but it only really matters is your HAVE to sell at a "down" time...

BUT, if you bought a house at the height of the market and/or did so with a "liar-loan" or an interest-only loan, you may have to sit down & crunch the numbers.

If the mortgage payment is going to impoverish the family & lead to severe deprivation, one may need to explore other options.

Banks/lenders are not likely to reduce the principal amount (which is the real problem), so if you find yourself paying a mortgage on a $400K loan, when the house would not sell for more than $200K, you are stuck in a chump-loan unless you can stay in the home long enough for it to rise back to the loan level (it may never do that again in your lifetime)..

You could "walk away"...but check the laws..you could be on the hook for the amount between what your house sells for eventually & the amount you walked away from. They have not been enforcing this in most cases, but once enough people start doing this, it may start being enforced.

You could try to do a short sale & take a hit to your credit score..and then start over

You could just stop paying and save every penny you can until the bank throws you out..

There are not many good options if you are trapped in a bad mortgage.

[adamuu]

26. Contact a lawyer. n/t

[independentpiney]

29. How far underwater are they?

I was able to do a refi from a shitty hfc loan to an fha 3.75 3/1 last year. As long as they meet the income guidelines and the appraisal shows them having enough equity in the home, that could be an option. You really don't know where the appraisal is going to come in until it's actually done.My appraisal came in at 235k when I had gotten cmas from local realtors of less than 210k and I thought it was worth around 215.

If that doesn't work out and they need to get out, offer boa a short sale deal and if they don't accept its time to walk.

[Vinca]

31. Markets go up, markets go down and markets go up again.

Since she would have to pay rent somewhere if she walks away, she might as well stick it out and hope, in a few years time, things turn back around. New England, in general, is much better off than other places and will probably rebound the soonest.