Owe Too Much On Your Home: Your Ways Out

It’s no secret that millions of Americans are currently upsidedown on their homes, meaning they owe more than their home is worth. In fact, since the peak of the market, California has experienced a 45% Decline in home values. If you were lucky enough to buy your home in the early 2000s then you are probably close to a break even point today, unless of course you refinanced along the way. So what is one to do when it seems impossible for their home values to ever return to their former glory.

First we need to look at what the fututre holds.
I don’t know if you’ve been paying attention to the global economy lately but let me tell you, it doesn’t look good. The European financial system is near a total colapse and several countries such as Portugal, Italy, Greece and Spain are on the brink of default. So what do these things have to do with my home values? The answer is everything.
The real estate market, much like any other financial market is mainly driven by confidence that their investments are safe and secure. That is why there is so much emphasis on the Consumer Confidence Index every month. It’s a temerature gage of how main street feels about the overall economy and their financial situation. As uncertainty surrounds the global economy, investors become worried and opt to cut their losses futher increasing the downward pressure of the markets.

Economists in the real estate field expect home prices to continue to slide until Feb 2012. But that doesn’t mean values will be bouncing right back up after that. They project a lot of bouncing around with very little gains in values for many years to come. Some go as far as projecting a return to those peak prices by about 2030. That’s 19 years from now.
I don’t know about you, but being stuck in the same home for the next 19 years only to break even hardly seems worth it.
So what are your options?

Getting Out From Under Your Home

There are a several ways one can escape the overwhelming feeling of being trapped by the enormous mortgage debt. Before I go into these, I must advise you to consult with your tax and legal professionals before taking any actions described here. I am not an attorney and this is not intended to be legal advice, this is just for informational purposes.

Foreclosure/Walking Away

As easy as it sounds, just packing up and moving can sometimes be a the solution.

Pro: In some cases, the lender’s only colateral is the property itself and may not be able to go after you for the difference. (This only applies in specific situations so again, it is important to consult with the aformentioned professionals)
Pro: If the above mentioned applies, you are free from your obligations and debts.
Con: A Foreclosure significantly impacts your credit and your ability to secure future credit.
Con: Any monies invested in the property, either as down payment or improvements is lost.
Con: Should the lender(s) have the right to pursue a deficiency judgement, you would be responsible for the diference even though you no longer own the property.

Short Sale/Negotiating With Your Lender

Short sales are the most typical solution when upside down on your mortgage. It is a negotiated resolution between you, the homeowner and your lender or bank.

Pro: Get to walk away without the fear of a deficiency judgement which would allow the bank to come after you for the difference.
Pro: Avoid a Foreclosure and the negetive effects of a Foreclosure on your Credit
Pro: May qualify for up to $3,000 in relocation expenses (restrictions apply)
Con: Lengthy Process which requires the submittion of your financial documentation
Con: In some cases, your lender may require a cash contibution to agree to a short sale (not typical)

The Bottom Line: There are several ways, including some not mentioned here which allow for a homeowner to extract him/her self from a property which has significantly reduced in value. It is importnant to review each and every option and seek the help of the appropriate professionals.

For questions or concerns please feel free to contact us at:
Info@DiMatteoGroup.com or call (619)512-0006