My mortgage is more than my house's value?

Question

What happens if I want to sell my house, but my house's value
has dropped below my original mortgage. I bought my
house at $495,000.00 in 2005 but now I fear that it's current
value is probably $400,000.00. I just can't pay the monthly
payments anymore and I need to sell the house.

Answer 1

It's called a short sale, and you will still have payments to make on the balance of the loan. Talk to your banker.

Answer 2

If you want to sell your home and know it's worth less than what you bought it for, first thing you need to do is contact your lender, see if they can arrange a different loan program to make payments affordable for you. If you've already been there/done that with no success, you need to contact a good Realtor and get it listed asap as a short sale. Your written authorization allowing your Realtor to communicate w/ your lender will allow him/her to contact your lender and explain your circumstances. You will receive a packet much like a loan app to complete and return to the lender. Also will need to write a letter of hardship, explaining why you can't afford your payments now, when you were able to pay them initially. If you have a second mortgage, things can get a little difficult for your Realtor, but if he/she is good, he can make it work for you to get your home sold, even if for less than what's owed on it. Best to do a short sale than to let it foreclose and mess up your credit for a long time, and to so it sooner, not wait till the last minute. Whatever the difference is between how much the house nets after the sale, and how much you owe is what the lender will either write off (like a forgiveness debt) or have you sign something saying you'll make xxx payments for a set amount in xxx amount of years. It may or may not be the total amount you owe. If the lender does write it off, they will file a 1099 and then that amount of money is what you will be taxed (like property taxes) on and told to pay. Again, the lender may or may not do this either. This stuff is pretty much at each individual lender's discretion. Sorry for the long explanation; I hope it helps.

Answer 3

You can request a short sale from you bank but it is netoriously hard to get them to agree to. Think of it this way if someone owed you $500 and came to you and said all I can give you is $350 would you just forgive the $150? The bank doesn't want to take a loss any more than you would want to.

You need to come up with a really good reason that will give the bank a reason to let you out of the house (like you are moving across the country for work...which didn't work for me btw, my house is still on the market, still paying way more than I can afford, plus rent in a new state).

Good Luck

Answer 4

You say the house's value has dropped below the original mortgage amount, but has it dropped below what's owing now after 2 years? If it has, then the above posters are correct, you will still owe the difference. If it hasn't, then you will lose most of what you've already put in, but if you're lucky get a little bit out of it.

Answer 5

Welcome to a rapidly-growing club. As the others have noted you will owe the full payoff of the mortgage, no matter what you sell the house for. It will ruin your credit rating if you don't pay, too.

Perhaps you can rent a room out? You might even be able to convert part of the house to a separate apartment, but check your local codes on this first.

Answer 6

You either face foreclosure or approach the bank concerning a short sale or 'deed in lieu'. In most places, you will be held responsible for the deficiency amount, and will be expected to pay it off.

If it's $100K, that really sucks, but that's part of purchasing real estate with nearly 100% financing, in a falling market.

Answer 7

exactly what you are describing is the scenario surrounding the many many daily foreclosures across the country.

you cannot refi when this happens....

you can attempt to follow the previous responders' answer regarding a short sale or you may be heading towards a foreclosure yourself.
--or you could get a 2nd or 3rd job to make it work

good luck :)

Answer 8

I think you might want to discuss with a realtor and see what the comparables are ranging in your area. Maybe think about renting the property to pay the monthly mortgage?
Good luck to you!

Answer 9

Depends on what State you are in. If in California, you can just give the house to the bank and walk away. Check your state laws. You might want to spend $100.00 and talk to a real estate attorney.

Answer 10

you're upside down in your house...talk to your bank and tell them you'd rather sell and pay them what you can get for it than have a bad credit rating with the bank foreclosing on it...the bank will most likely work with you as they don't want your house either!!