Being “Underwater” or Having Negative Equity

If you find yourself in a situation where your home’s value has decreased, or you owe more on your mortgage than the property is currently worth (commonly known as being “underwater” or having negative equity), there are several options you can consider:

1. Stay Put and Wait: If you can afford to keep making mortgage payments and you’re not facing any immediate financial hardships, you might choose to stay in your home and wait for the real estate market to improve. Property values can fluctuate over time, and there’s a chance that your home’s value could increase in the future.
2. Loan Modification: You can reach out to your mortgage lender and inquire about a loan modification. In some cases, lenders may be willing to adjust the terms of your loan to make it more manageable, such as lowering the interest rate, extending the loan term, or even temporarily reducing the monthly payments.
3. Refinancing: If interest rates have dropped since you initially took out your mortgage, you might consider refinancing. While it may not directly address negative equity, refinancing at a lower interest rate could potentially lower your monthly payments and make it easier to manage the loan.
4. Short Sale: In a short sale, you sell your home for less than what you owe on the mortgage, and the lender agrees to accept the proceeds as payment in full, forgiving the remaining debt. This option can help you avoid foreclosure and the associated credit damage, but it requires lender approval and can be a complex process.
5. Negotiate with the Lender: Some homeowners in distress negotiate with their lenders to settle the debt for less than what is owed. This option is known as a “deed in lieu of foreclosure” or a “mortgage write-down.” While it can be challenging to get a lender to agree to such arrangements, it’s worth discussing with them if you’re facing severe financial hardship.
6. Renting Out the Property: If you can’t afford the mortgage payments, but the rental income from the property covers the mortgage and related expenses, you might consider renting out the property. However, becoming a landlord comes with responsibilities and potential challenges.
7. Government Assistance Programs: Depending on your location and the specifics of your financial situation, there might be government programs or initiatives that can provide assistance to homeowners facing negative equity or foreclosure.
8. Bankruptcy: While it should be considered as a last resort, bankruptcy might be an option to explore if you have significant debt and are unable to keep up with your mortgage payments. Consult with a bankruptcy attorney (Call David Arietta at: 925-472-8000) to understand the implications and potential benefits in your situation.

Remember, dealing with an underwater property or financial distress can be overwhelming, and the best course of action may vary depending on your specific circumstances. Before making any decisions, it’s essential to consult with a qualified financial advisor, real estate professional, or an attorney who can provide personalized guidance based on your situation.