If your home value has declined and you don’t want to pay your mortgage anymore, try to sell your home in a short sale.
Q: I am single and live in a home in Clayton County, Georgia. I’ve owned the home for 16 years and owe $115,000 on two mortgages. The neighborhood has really gone downhill and housing prices in my area are around $45,000.
Owning a home may be the American dream, but not for me. I have not kept the house up for some time and it is falling apart around me. I just can’t get right with spending any money when I will never get any return.
I am 57 years old and have not suffered any job loss or any cut in income but I am on a budget. I realize that whatever I do will challenge my credit and possibly my character. I never thought I would be willing to rent a home but have changed my thinking on that for a while now. This house has robbed me of my happiness and I know the stress has caused me health issues. I want out! What advice do you have for me?
A: We’re sorry that your housing situation is causing you such stress. It seems that the home values in your neighborhood have stayed low after the Great Recession and may not come up anytime soon, particularly if there are a lot of foreclosures and short sales in the immediate vicinity, and you and your neighbors have stopped caring for your homes.
Homes do require maintenance and upkeep, and if you haven’t spent that cash caring for the home, you should have quite a bit of money saved up. At least, we hope you saved that money.
Certainly, if a homeowner with a stable job is unwilling to care for his or her home, other people in the community facing job losses, health issues and economic problems won’t be able to care for their homes either. Unfortunately, neighborhoods like yours suffer true economic loss in recessions, and it appears your neighborhood has gone into a downward spiral as a result.
Your question poses a couple of problems. One of them is that you appear able to afford your home but you don’t want to pay on a mortgage anymore, because the house is so far underwater. The other issue is you’re facing the fact that the home value has declined, mirroring the declined condition of your neighborhood. You believe both of these issues are making you sick. That’s quite troubling.
We don’t know if moving and giving up on your home will relieve your stress, but if you sell the home, you will have to sell it as a short sale. In a short sale, the proceeds from the sale are insufficient to pay off the lender and other closing expenses and costs. You’ll need both lenders to consent to the short sale and depending on your circumstances and the lender’s willingness, you might come out from the sale with a dinged credit score and history but the lenders may write off the loss.
Otherwise, you can sell, but the lenders may require you to pay off the amount still owed on the mortgage. For example, if you sell the home for $50,000 and the lenders get $45,000 after closing expenses, you will still owe the lenders about $70,000. Some people have just abandoned their homes, but this approach is probably the worst way to go. If you want to move on with your life, you should try to sell your home and work with your lenders in the short sale.
If they forgive the balance owed (the deficiency), your credit will be damaged but you won’t have the debt. If they refuse to forgive the debt, you can work out a payment plan with them. If they won’t work with you and you can’t afford the debt, then you could consider a deed-in-lieu of foreclosure, actual foreclosure, or (if your finances fall within the prescribed limit) bankruptcy.
A real estate attorney might be able to help explain these concepts. You can also find help at MakingHomeAffordable.gov.