Underwater but not drowning yet
March 29, 2010 8:22 AM   Subscribe

We are $125k underwater in our mortgage. We are not currently in financial distress. Do we have any options?

My wife and I own a home in the state of Florida, purchased at the peak of the bubble. Our current mortgage balance is $300k, and according to zillow.com our current estimated value is $175k (I know, that may or may not be accurate, but let's assume it is in the ballpark for the sake of discussion). We are not currently having any problem making our mortgage payment or paying our other bills, and have very good credit. On the other hand, we do not have any large cash reserves or investments outside of retirement plans in order to pay down the balance.

Are loan modifications and short sales strictly based on financial distress? I.E. - do I need to lose my job and have our credit demolished before we have any options, or are we trapped in a mortgage where we will likely not see any positive equity in the home for at least 15 years?

The state of Florida is a recourse state, meaning we cannot simply hand our keys over and walk away.
posted by anonymous to Work & Money (17 answers total) 6 users marked this as a favorite
The fact that lenders have recourse in Florida is a powerful stick to wield against you. At this point, if you can make your payments, it's best to just hunker down.
posted by Oktober at 8:37 AM on March 29, 2010

You say you aren't currently in any financial distress. Were you guys planning on moving to a new house or staying in the house for a long time when you bought the house.

I agree with Oktober and think you guys should hunker down and pay your mortgage.
posted by anniecat at 8:41 AM on March 29, 2010

Paying a lawyer to help you decide would be far far cheaper than eating $125,000 because some disinterested parties told you to 'hunker down.'
posted by infinitefloatingbrains at 8:49 AM on March 29, 2010 [16 favorites]

follow-up from the OP: "When we purchased the home, we intended to be there forever. It appears now that, for both career and family reasons, we may need to move to the other side of the country (not urgently, but within the next 2-3 years)."
posted by jessamyn at 8:49 AM on March 29, 2010

Is this your primary residence? Many of the programs to assist homeowners are only for primary residences and for firsts only, not for second mortgages.

Have you called your lender and asked about refinancing under Making Home Affordable? I had one of the big names as my mortgage lender, and we are about $30k underwater. I was able to drop 2 points off my loan without having any lates or so on. It was classified under the Making Home Affordable program. It was pretty painless. I got better terms, am saving about $200 each month (which I'll put right back into the mortgage) and only paid about $500 out of pocket to re-fi.

I know BofA is going to start doing cram-downs, where they adjust the principal balance on the mortgage to what the market would bear now. Apparently this is pretty standard in commerical real estate lending but has never happened before in residential real estate lending. Whether this has started in earnest, I don't know. The best bet is to peruse what your lender is doing--do some investigation on their Web site, find out if your loan is a FHA loan or conventional and then see what your lender can do for you.
posted by FergieBelle at 8:50 AM on March 29, 2010

Paying a lawyer to help you decide would be far far cheaper than eating $125,000 because some disinterested parties told you to 'hunker down.'

I have to agree with infinitefloatingbrains. A lawyer would be a much better bet and would be able to carefully help you sort your options.
posted by anniecat at 9:07 AM on March 29, 2010

You have made sure that the lender still holds your paper, right?

Beyond that, what infinitefloatingbrains said.
posted by magstheaxe at 9:55 AM on March 29, 2010

There is a lot of focus on mortgage issues in the legal aid / legal services community right now, which is why, although Ask.Me is not a good resource for these questions, google.com (or your search engine of choice) actually is. Search for a combination of mortgage foreclosure assistance and your county or city (even though you are not in foreclosure and don't anticipate being in foreclosre). Click result links that send you to a legal services organization in your community. (The Florida Bar Association has a listing of legal aid organizations in the state) You'll be able to find out what your real options are. You may not have any, but you might. These organizations will know and will guide you through finding out.

Most, if not all, legal aid organizations have sliding fee scale arrangements, so that they are able to assist people who have higher incomes, as well as the truly poor. If the organization you call doesn't, it will be able to refer you to one that does. It will most likely have self-help guides to offer you.
posted by crush-onastick at 9:57 AM on March 29, 2010

I am *not* advocating this and strongly urge that you consult with a lawyer before undertaking any course of action, however...

You'll likely find your lender becomes much more willing to discuss mortgage modifications once you start to miss some payments. Your lender does *NOT* want a completed foreclosure/sale process which will cause them to have to recognize the $125K loss on their books.
posted by de void at 11:14 AM on March 29, 2010

Why are you even considering this at this time? If you do not need to move, you do not need to sell. If you plan to move in two to three years, you have at least one to two years to see what the housing market turns out to be. If you are seriously upside down at that time, you can consider whether you want to rent the house out and either buy or rent in your new location. Maybe your new employer(s) will want to give you relocation assistance.

In other words, too much can and probably will happen between now and then that will make much of any analysis you do now pretty much moot. Relax and watch what happens for at least a year and then start considering your options. Anything you do now could screw up your choices when you actually have to make them.
posted by Old Geezer at 11:16 AM on March 29, 2010

I, for one, welcome this new housing market that gives us a $125k appreciation in 1-2 years while we sit around relaxing, watching and not considering alternatives for a lifestyle change that could hit in 2-3 years...

OP, what infinitefloatingbrains said, 10 times over.
posted by jerseygirl at 11:52 AM on March 29, 2010

I disagree with crush-onastick on using AskMeFi for advice on this topic is a bad idea. The Google searches I quickly did on this topic made me MORE confused.
posted by cowmix at 1:20 PM on March 29, 2010

Ignore advice to retain a lawyer for the immediate moment. AskMe members have a penchant for recommending lawyers for a panoply of problems, but in this case it's not appropriate--yet--for the decision you are trying to make. A lawyer can advise you on legal options, but is not qualified for examining your financial picture as a whole and giving you ideas (both in and out of the box) for fixing it. For this, you need a financial adviser. Keep the lawyer in the background, because she or he would be an ineffective sounding board--and a sounding board is what you need. After you've roughed out a plan with your financial adviser, you can hire a lawyer to help you implement it.
posted by Gordion Knott at 2:59 PM on March 29, 2010


While I understand your point, the crux of the matter is, while the OP is not financially hampered by his mortgage, he is garnering negative returns based upon an amoritized contractual obligation; quite painful from an investment standpoint. Given the OPs comment about being a Florida resident (nonrecourse), a lawyer seems to be the logical choice to discuss the nuances and avenues for seeking mortgage contractual abrogation in lieu of recent government intervention policies.

With that being said, the OPs situation, while regretable, is a classic case of caveat emptor.
posted by Hurst at 4:04 PM on March 29, 2010

I think you should call the holder of your mortgage and ask what would qualify you for Making Home Affordable, then start jumping through the hoops. This will probably require a ton of paperwork, possibly missing a few mortgage payments (sounds like Bank of America requires missing 2) on purpose, and trying really really hard (and hopefully succeeding) in not losing your sanity and yelling "But that makes no sense! What sort of crazy idiot would want that?" at the people you have to deal with.
posted by meepmeow at 5:46 PM on March 29, 2010

I too advise calling the lender, but ask them about all your options. My bank, for example, said it would be possible to work out a deed in lieu, which could be a way for you to get around having to sell/short-sell, dig into your reserves, and possibly even take a credit hit, depending on whether the bank would want you to default first. But ask now; in my case, we'd need to have the property listed for sale for 90 days before we could go forward, but we could start what I suspect will prove to be an arduous paperwork process now. I second de void; banks don't want to foreclose.
posted by troywestfield at 8:05 AM on March 30, 2010

Get competent legal and/or financial advice before you pick up the phone to your lender.

That said, this is a paper loss until you sell or remortgage (hint: don't do try to do either). Who knows where the housing market will be three years from now. Par? Net gain? For now, sit tight and keep making those payments.
posted by dmt at 10:00 AM on March 30, 2010

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