What are my options if I am upside down on my house due to a second mtg?

chadlc · Joined: 08 Sep 2008 Posts: 1 1.43 Dollars($)

I have just returned from living overseas. I have a home in Hawaii I must sell. It has a first mtg of $285,000 and a second of $115,000. A few months ago, I obtained a cma from a local realtor who told me the house would sell for $425-$475. As a former realtor, I have done my own research and the house might realistically sell for $375,000, after commissions and closing costs I would be upside down by about $40,000. I have flawless credit (735) and I am up to date on my payments. However, I am unemployed and have little cash reserves. I have no other debt and my only other assets are two lots which might currently sell for $60,000 each, but it is a declining market and I paid $100,000 for each of them. My question is this: Is it possible to foreclose on the house and keep the lots without having a deficiency judgement following me around?

helping_user · Posted: Tue Sep 09, 2008 12:00 am Post subject:

Welcome chadlc.

The total mortgage balance including the first and second loans is $400,000. And if your home sells for around $375,000, then you will still owe $25000. Now, if you sell one of the lots at $60,000, you can easily pay off the remaining debt. I mean I understand that you don't want to sell at a loss, but it's far better than paying down the mortgages. Otherwise, Hawaii being a deficiency judgment state, you may have to pay the deficiency and in case you don't, the lender can place a lien on the lots.

Thanks.

vegas_storms · Joined: 12 Sep 2008 Posts: 50 1.24 Dollars($)

Realistically the 1st mortgage is much less likely than the 2nd mortgage to file a deficiency judgment. If you want to play this kind of game then let them foreclose, ruin your credit and even then you may have to pay the difference PLUS they may come after you for the bankruptcy fees, which can total 10's of thousands. Either rent the house out until you get a job or sell it and pay the difference or you're looking for big trouble.

lisascherzer · Joined: 04 Jan 2008 Posts: 755 1.03 Dollars($)

Chad,

Do NOT let them forclose the property. It will ruin your credit. Try and do a short sale. THis is when the lender takes less than what is owed based on optaining an offer to purchase at fair market value. Many lenders are accepting short sales because they would rather do this than have cover the legal expenses involved and to sell the home in the future for less than what you are able to sell it for today. Sell the home and contact the lender to accept a short sale.

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