Is You Home Worth Less Than Your Mortgage?

There are many reasons that a home's debt could be more than the value of the home itself. And a lot of the time just waiting is the answer. If a homeowner is willing to be patient, over time the value of the home will go up and the home will again be worth more than the amount of debt it has stacked against it. The problem is that this could take awhile - as much as several years.

That answer simply won't do for some homeowners that have a need to sell their house very quickly. This could be because they need to move, they are struggling financially, or there was death or divorce in the family. What this leads to is the homeowner needing to sell their home but not being able to make the profit needed to cover the closing costs.

There are some solutions to this problem, the most drastic to be to do nothing and not make the mortgage payment. This should only be used as a last resort as doing so negatively affects your credit more so than anything else.

There is also the option of a "short sale." To do this, the homeowner must explain the situation to the lender and see if they will take less money than what is owed. Although this is not an attractive option for the lender, neither is paying for the costs of foreclosure, making any needed repairs, putting it up for sale and trying to get the best possible price for it. Although lenders may not always be open for a short sale option, they will be agreeable to it sometimes. There is a lot of stress and paperwork involved in a short sale. If you are going to go this route, it's best to hire a real estate agent that can help you through the process.

If going through with a short sale turns out to be the best option, the first thing that needs to be done is to contact the Loan Service Department of the lender. One can generally find the phone number in the documentation they received regarding making payments. Whether you call them or mail them, keep copies of everything and make notes of any conversations. Because the lender will want to know that the homeowner truly doesn't have the financial means to make payments, they will want to see financial statements that prove this. If they agree to a tentative agreement, there is still a lot of work that needs to be done.

The real estate agent will still need to place the home up for sale, find a buyer and get a legitimate offer. Once this has been done, all paperwork needs to be submitted to the lender and they will then make their decision based on that. This can sometimes take quite awhile as the paperwork also needs to be forwarded to the investor. The lender just services the loan for them. When there is mortgage insurance on the loan, there are other decisions to make and this further slows the process.

Once the investor and the lender both agree, the short sale will be approved and the home can then be sold. Because a short sale is regarded as a "forgiveness of debt", it is income and will need to be claimed on that year's tax return.

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